Why does Macdonald have so much success in China

1
Why does Macdonald have so much success in China?

• Good management
• successful advertisement
• Quality of food
• the novelty, the status and symbol that it gives
• it is the place to be, and be seen. Whether or
  not it is the place to eat is another issue.

2
Understanding the social and cultural values

• The importance of understanding the social and
  cultural values of Chinese consumers the
  importance of status, and the disconnection
  between purchasers and end users.
• Four elements of social and cultural values that
  bear most directly on consumer behavior life
  extension, interpersonal view, social status and
  a bias for foreign goods and services

3
Life Extension

• It means not only extending ones own life, but
  also a deeply felt connection to ancestors and
  future generations
• the metaphor of an individual holding onto a long
  rope
• emphasis on inheritance for the future
  generations, and high per capita rate of savings

4
Life Extension

• Disconnection between purchasers and end users,
  and life extension
• one-child policy and life extension
• the unusually high purchasing power of the
  younger people in China

5
Interpersonal view of oneself

• The strong tendency of the individuals to relate
  to other people or their opinion.
• Qu tong xing blending in with the crowd or a
  group of people, and following the tastes of the
  group
• the challenge is therefore to determine the
  groups and influence their behaviors
• the importance of brand names in China beauty in
  the eyes of beholders

6
Social Status

• The importance of status for the Chinese people
• any product or service that clearly expresses
  status or position will be successful Macdonald
  an even better case is Zhonghua, Hong Tashan and
  Yun Yan cigarettes
• popularity of mobile phones
• Gifts, status, and disconnection of purchasers
  and end users

7
A Bias for Foreign Goods and Services

• The early success of foreign consumer goods in
  the Chinese market
• the popularity of brands and names with foreign
  pronunciation
• a trade-off between better quality and higher
  price
• the changes in the markets for electrical
  appliances in recent years

8
The Forces Shaping Future Consumption

• Rising economic prosperity in China
• Closer interaction with outside world
• Changing demographics
• Infrastructure development
• Government policy

9
Rising Economic Prosperity

• Growth of gross domestic product in the past two
  decades and projected growth rates
• Rise in per capita income
• Nominal income and actual income income levels
  of average Chinese citizen are higher than
  official figures suggest
• rise in income and effect on up-market goods

10
Closer Interaction with Outside World

• The increasing influence of Western culture in
  the Chinese market
• Hong Kongs influence in South China
• potential resistance to this influence in China
• implications for certain goods e.g. coffee and
  wine

11
Changing Demographics

• One-child policy and little emperor
• rapid growth of the old people
• smaller family
• Implication for patterns of consumption

12
Infrastructure Development

• Extended reach of mass media, ownership of TV,
  and effectiveness of advertisement
• Mobile phone and internet penetration rates
• growing popularity of credit cards
• improved transport networks of all types

13
Government Policy

• High rate of saving and macro-economic effect
• governments policies to encouragement
  consumption and stimulate the economy e.g. cut
  interest rate and impose a tax on interest rate
• reform of the household registration system and
  greater social mobility

14
Government Policy

• Reduce housing subsidies and force employees to
  buy their own homes
• encourage bank mortgage
• implication for the residential housing industry
  and related industries

15
Who are the Consumers?

• Consumers in urban and rural China
• consumers in the more developed parts of the
  country along the coastal belt and the inland
  provinces
• generational differences
• the s-generation
• young and middle-aged rural consumers
• the old generation

16
The S-generation

• One-child policy and the s-generation the
  s-generation comes of age
• the size of the s-generation 470 million in
  total under 18, 100 million in the urban areas,
  and an increasingly large of the urban children
  under 18 is the one-child generation
• a 1992 survey revealed that 50-70 of the monthly
  expenditures of urban families were dedicated to
  the single child

17
The characteristics of the s-generation

• Materialistic and a high level of wants
• Sophisticated consumers
• Broad range of interests
• More individualistic and therefore more likely to
  spend on themselves when earning income
• More exposed to the influence of mass media,
  especially TV

18
Parents and the s-generation

• Life extension and high expectations of children
• desire for intellectual enrichment and academic
  advancement
• 90 of the urban children survey wanted to be
  more intelligent
• huge markets for tonics, special foods and pianos

19
The S-generation and Families

• Splintering of family structure
• Leading to an increase in both child-care
  facilities and nursing care for the elderly. (the
  decline of welfare provided by the workplace will
  even be a greater boost for child-care
  facilities)
• the emergence of DINKS (double-income-no-kids)
  families individualism

20
Young and Middle Aged Rural Customers

• Rural industrialization, urbanization and an
  expanding market
• Enormous variations in rural China flourishing
  Pearl River Delta and Yangzi River Delta, and
  poverty in many other parts of rural China
• rural population and agricultural population
  rural industrialization and migrant population

21
Changes in the countryside and market expansion

• Shifting from relatively self-sufficiency to the
  marketplace
• rapid growth of rural income in the 1980s and
  stagnation in recent years

22
Four Types of Rural Consumers

• Farmers involving in agriculture in the
  countryside
• Farmers involving in agriculture surrounding
  large urban centers
• Rural population working in collective and
  private industrial enterprises
• migrant population

23
The Old Generation

• An expanding old generation, 110 million at
  present and predicted to reach 370 million in the
  middle of next century
• six adults for one child and one child for six
  aging adults
• market for homes for aged people

24
Characteristics of the Old Generation

• More educated 60 of those turning 60 in the
  next few years will have some form of education
• experienced the prosperity produced by the
  current economic reform
• more sophisticated and expect more from life in
  retirement greater appetite for luxury goods

25
Old People in Urban and Rural Areas

• Differences between the old people in the urban
  and rural areas
• Urban old people are generally able to support
  their retirement life by pension
• old people in the poor rural area are more
  reliant on the support of their children

26
Emerging Consumer Centers in China

• Satellite cities
• Emergence of city belts in coastal regions
• resource-rich regions

27
Satellite Cities

• Migration of people from traditional city centers
  to suburbs.
• Is this trend already emerging in China?
• Development of the satellite cities and
  annexation of the sub-urban counties
• examples Pudong and the development in the Pearl
  River Delta

28
Hollowing Out of the City Center?

• Government policy to re-develop the city center
• Limits to the growth of satellite cities in
  China transportation and poor planning
• sub-urbanization and business opportunities
  markets follow consumers
• changing landscape and market strategies the car
  industry as an example

29
Cities Sprawl in Some Parts of Coastal China

• The Pearl River Delta and the Lower Yangzi River
  Delta
• rural industrialization and urbanization towns
  and the growth of satellite towns without prior
  planning linking of towns and formation of large
  cities
• annexation of cities of adjacent lands, and the
  blossoming of rural towns and improved
  transportation links

30
The Resource-rich Regions as Consumer Centers

• As administrative centers and old industrial
  centers supporting large rural population
• Shift of regional development strategy to pay
  more attention to the development of the inland
  regions
• Improvement of infrastructure through massive
  investment from central government
• Fully tapping the resource potentials of the
  inland regions and economic growth

31
The Evolution of Consumer Preference

• An emphasis on functionality before 1985
  purchases to serve functional needs
• Quality purchase from 1985-1992
• Purchases based on more sophisticated criteria
  such as the aesthetic quality of a product or
  service
• the speed with which the Chinese consumers have
  moved from one stage to another, the high degree
  of their commitment to these intangible
  qualities, and the types of intangible qualities
  they emphasize
• variations across China urban and rural, coastal
  and inland etc.

32
Ambience

• Qualities of an object or activity that are
  aesthetically, spiritually, or emotionally
  pleasing
• consumers increasingly emphasize design as a
  factor in their purchase behavior
• cosmetic industry
• Goldlion and Pierre Cardin
• the pleasure from possessing expensive products
  and products with famous brands
• Travel high on the list to better life
• More willing to pay for foods than for
  accommodation

33
Efficiency

• Supermarkets
• a shift to foods that require less preparation
• fangbianmian (convenient noodles)
• in 1992 a survey found that men and women on
  average spent 2 and 3.2 hours respectively on
  household chores. If half of the urban population
  reduce their household chores by 20, the market
  for household service would be enormous. Is this
  a potentially profitable market?
• How willing are the Chinese consumers to pay for
  convenience and efficiency? - level of income

34
Health and Healthy

• Attaching great importance to health is not
  unique to China. What is unique is the value
  given to health tonic and drug.
• In urban areas, particularly large cities,
  consumers have given more attention to more
  healthy foods and clothing
• natural fabric versus easy to care in clothing
• a market for exercise equipment and health and
  fitness club?

35
Status

• Status has a greater influence over consumer in
  China than it does over consumers in other
  countries
• to express status in the context of the group
• consumption primarily for the status it confers
  rather than for the enjoyment of consumption the
  example of leaving a label on the sun glasses
• why does tourists from China buy gifts for their
  friends and relatives?
• Luxury item s are generally purchased for status
  and not because of the sophistication and taste
  of consumers
• A special type of ambience

36
Emerging Large Markets

• Housing and Home decoration
• investment and insurance

37
An Increasingly Larger Housing Market

• Housing reform gradual phasing out of rental
  subsidies and government encouragement of home
  ownership
• availability and improvement of home mortgage
  facilities in 1996, for example, a bank extended
  the length of mortgage from 3 to 10 years
• More families and demand for home population
  grew 19 between 1980 and 1994, but the number of
  family units grew 45.4 during the same period.

38
Home Decoration

• In 1990 the overall market for interior
  decoration in China was RMB8 billion, and in 1995
  it was RMB60 billion. By 2000, it is estimated to
  reach RMB 200 billion

39
From State Welfare and Security to Self Planning

• Shifting of responsibility for welfare from the
  State to the individual
• retreat of the state from provision of housing,
  pension, and health benefits
• high saving rates, banking services and stock
  markets
• insurance services health care insurance and
  life insurance
• limited foreign participation in banking and
  insurance

40
Approaches to the Chinese Market

• Product-niche approach (including the value-niche
  approach)
• Geo-niche approach
• Consumer-niche approach

41
Product-niche approach

• To clearly differentiate the products in question
  from competitors
• pharmaceuticals are often easier to be
  distinguished from other products
• Suitable for large companies that have the
  resources to create a sharp image of their
  products
• Chinas sheer size and regional diversity are
  barriers for the effectiveness of this approach

42
Geo-niche approach

• Targeting a region with a concentration of
  resources
• often an approach taken by smaller companies
• seeking to be big fishes in small ponds
• focusing on the under-developed regions
• lower purchasing power

43
Consumer-niche approach

• Identifying a consumer segment with a significant
  demand and focus on selling to that particular
  segment
• whether such a consumer segment can be clearly
  identified and differentiated, and segment-based
  information is still quite thin in China
• Lining and Jianlibao
• Broadly defined segments as children, women and
  the elderly

44
Key to Success

• Identifying the right niches the example of
  Starbuck Café in Beijing
• have a competent executive who understand the
  complex business environments in China
• identify the most relevant values and trends
  will Macdonald lose its consumers?
• Focus on the area with core competence
• Provide real and unique value consumers have
  become more sophisticated and demanding, and
  there are more competition

45
Key Issues for Consideration

• Short product cycle
• Rapid economic growth and changing consumer
  preferences
• significant regional differences
• polarization of consumer purchasing power the
  gap between the rich and the poor is growing, and
  the number of poor people is increasing as a
  result of the close-down of state enterprises
• changing government policies and hidden rules