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Understanding consumers key to survival

By ZHENG YANGPENG (China Daily) Updated: 2015-04-28 15:12

This is what consumer experts call the "emotional side".

On the technical, or functional side, is how to convince consumers that the product on which you spent 20 yuan actually delivers much more than the one that cost 10 yuan.

All of it gets more challenging in China's market, where consumers are notorious for their lack of brand loyalty. In China, there is just an explosion of choices, and consumers are willing to try new things and switch brands, he said.

The flourishing of e-commerce here also reduced big companies' traditional advantages: a key one was "distribution", he said. Smaller companies found it difficult to get their products into millions of stores in hundreds of cities. But e-commerce made it much easier and quicker to reach millions of customers.

Just like the story of Chinese consumers who flock to Japan to buy toilet seats, two-thirds of Chinese consumers' luxury product spending has taken place overseas.

Western luxury brands have long been "thinking of Chinese consumers in a global context", in Walters' words. That mindset required these companies to "reorganize" themselves so the scenario could be "advertise in China, sell in South Korea".

"As consumers travel abroad more and more, they experience different ways of life in different countries. They not only go to tourist sites but also to supermarkets. That only raises the bar," he said.

All these challenges made foreign companies struggle to adapt, and many have complained that the market is not what they thought it was.

But Walters said there are so many sectors that it is hard to look at an average profit margin. If you are in a category where consumers are willing to pay more for quality, you have a better chance to be profitable. If you are in a category where consumers will not trade up, it is tougher.

In addition, according to Walters, it is hard to be profitable if you are not the leader in a category, even if you are in third or fourth position. A minimum size is also necessary.

"If your annual sales are less than $300 million in China, very few companies make money. Once you cross the threshold, it is much easier to make money," he said.

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