23 Aug 2017
China’s Middle-Class Consumers: 2017 Survey Summary and Recommendations
One of the major objectives of China’s 13th Five-Year Plan is to build the country into a moderately prosperous society by the year 2010, with the number of middle-income earners continuing to climb and with living standards and quality of life rising across the board. In recent years, as the economic and social environment of the mainland has evolved, middle-class consumers have in general become more mature while the younger-generation middle class have developed different lifestyles and spending preferences. The Hong Kong Trade Development Council conducted the latest in a series of surveys on China’s middle-class consumers  in order to track and understand their preferences, spending patterns and trends in the light of various social and economic changes. Findings of the survey can serve to help Hong Kong companies tap the mainland market more effectively.
As well as trying to discover the general characteristics of middle-class consumption behaviour, the present survey also explores the impact China’s 13th Five-Year Plan is having on middle-class consumption and way of life. One of the policy directions of the Plan is the promotion of new consumption patterns, including green, fashionable and quality products, the development of custom-made services to meet the demand for personalisation, the expansion of service consumption, and the growth of online/offline integration.
Efforts were also made in this survey to take into account post-80s consumers and reflect the consumption characteristics of this particular demographic.
Although China’s economic growth has slackened in recent years, mainland middle-class consumers are still upbeat about the prospects for their income and spending. 81% of the mainland middle-class respondents in the survey expect their income to continue to increase in the coming two to three years. Regarding the impact economic slowdown may have on day-to-day consumption, 51% say they will spend more than before in pursuit of a higher quality of life, while only 14% say they will be more prudent in their daily expenditure. The post-80s generation is notably more upbeat than the older age groups, with 88% of the respondents in the 25-30 age group saying that they expect their income to increase in the future.
Overall, 79% of the respondents own cars, a significant increase from 55% in the 2013 survey. 50% of the cars owned have a value exceeding RMB150,000. Spending on household/personal daily consumption still takes up the lion’s share of the allocation of household income. However, as income continues to rise, middle-class households are putting more of their income into financial investment and insurance, while home and car loans are also on the increase.
The consumption of imported foods, organic products and haitao are also trending upwards. The category “imported foods/beverages/health foods” had the highest purchase rate in the past year in this survey, with 75% of respondents saying they have bought such products. The purchase rate of “organic products” is slightly lower at 69%, while the purchase rate of “foreign products via haitao” stands at 43%.
Although the proportion of consumers who have purchased custom-made products is not high, the purchase rate of certain custom-made products registered significant growth. For example, the proportion of respondents who have purchased custom-made furniture rose from 11% in the 2013 survey to 52%. The main reasons given for buying custom-made products were to “meet personal demands or styles” and to “express my personal tastes”.
In terms of lifestyle, regular exercise has become part of the mainland middle class’s daily routine. 68% of the respondents in the survey agreed with the statement that they were “exercising more, and regular exercise has become part of (their) daily life”. Western lifestyle and food are also enjoying greater popularity among the mainland middle class. Nearly 50% of respondents said they were “patronising western eateries more often than before.” Post-80s generation consumers (especially those aged 25-30) have a more western lifestyle than older age groups.
Middle-class mainlanders’ demand for premium products has risen markedly. In the survey, 60% of respondents said that “the grade of products and services I use now is higher than before, even though this means greater spending”. While 52% of the respondents agreed that “using products of well-known brands can lift my self-image”, 56% of them also concurred that “I attach more importance to personal feeling and style and would not follow trends blindly”. Findings of the focus groups and questionnaires show that the new-generation consumers in particular do not seek to identify themselves with brands although they do use branded products. In other words, they are more confident and seek to “please themselves” and “experience better and more unique” products and services without desiring other people’s recognition of their status.
Consumption of leisure, entertainment and sports services by the mainland middle class has grown rapidly, with the consumption of fitness, beauty and overseas travel services, as well as training in pursuing lifestyle interests and in personal enhancement, set to grow further. Overall, 43% of respondents said they were members of a fitness club and worked out regularly. This trend was particularly marked among younger age groups, with 45% of the 25-30 and 31-36 year-olds saying they worked out compared to just 38% of 37-50 year-olds. 48% of the respondents agreed with the statement “I prefer lifestyle interest courses purely for personal interest; I attend because I like them” most accurately described their attitude.
When it came to preferences about travel, more than 50% of respondents said they prefer “tours with detailed schedule and planning”, while the proportion of those who prefer joining tour groups was only 12%. It appears that in future, the travel preferences of the middle class may further evolve from “self-guided trips” to in-depth “private tailor-made trips” and “high quality unwinding vacation trips” with specific objectives.
More than 50% of respondents said they had purchased new investment products in the past year, suggesting that the mainland middle class is keen on this type of expenditure. They are also receptive to the idea of consumer borrowing. 40% of respondents said they have used “future money requiring interest payment” – a practice more common among those aged 25-30 than among the older age groups.
Thanks to growing health awareness, coupled with an increase of supplies of green products on the market and greater convenience for consumers trying to buy them, 71% of respondents say they have been spending more on green products in the past year, particularly “green products ensuring health and safety”. While 73% of respondents agree that they “tend to use products ensuring health and safety”, 59% say “more purchase channels and greater convenience” is the main reason prompting them to spend more on green products than before.
Middle-class consumers shop online about 5.25 times a month on average, with 73% of respondents shopping online at least once a week. 60% of respondents said they use smartphone apps to place orders online, which suggests that consumers have already developed the habit of using their phones to create their “mobile lifestyle platform”. A greater number of respondents in the 25-30 age group shop online via smartphone apps than in the older age groups. Clearly, businesses targeting the post-80s generation consumers need to think mobile.
When consumers make purchases at shopping sites, they are easily lured by special offers to buy products outside their intended purchases. 48% of respondents said that in order to take advantage of coupons offered by shopping sites or price cuts on designated products, they would choose other products in addition to their intended purchases. Only 15% of respondents indicated that they would not be lured by promotional gimmicks offered by shopping sites. 35% said they would be attracted to buy by the “guess what you like” products offered on shopping sites. 53% agreed that “the information shared by friends can trigger my impulse to buy”. The percentages of female respondents and those on high monthly household incomes agreeing with that statement are even higher. In view of this, making good use of social media and disseminating information via target customer groups are promotion and brand-building strategies that should not be overlooked.
When asked which forms of O2O they use in making purchases, 58% of respondents agreed that they would “choose/experience at physical store first before buying online”, while 55% said they would “choose the right product online and experience it at physical stores before going back online to buy”. This suggests that most of the respondents using the O2O approach will eventually make their purchases online. In view of this, “advertising and brand promotion” is becoming an increasingly important role for physical stores. In order to attract consumers to visit them more frequently, physical stores must pay more attention to their business format. For instance, “shops using special themes” are a popular business format these days.
Conclusions and Recommendations
Findings of both the focus groups and questionnaire survey show that the main drivers of mainland middle-class consumption can be summarised as follows: “pleasing oneself”, “wishing to try better and more unique” products and services, “expressing personal taste”, and “pursuing trends and trying new things”. This is particularly the case with the younger generation.
“Personalised trendy style” is the core of middle-class consumers’ demand for products and services. They do not just pursue the latest trends, but also want unique personal style. As such, in both the product and service sectors, the market is set to undergo further segmentation and brands which better manage to satisfy the demands of niche markets will emerge as the winners.
Based on the survey findings, some of the potential markets that should be targetted are listed below:
Sporting goods and equipment: As regular exercise has become part of the lifestyle of middle-class consumers, it can be expected that the market for various sporting goods and equipment will continue to grow. Demand will trend towards more professional products.
Health and green foods: In recent years, middle-class consumers are increasingly looking for higher quality products, especially where health-related products are concerned. The demand for imported foods/health foods as well as organic or green food products is bound to continue to grow.
Trendy and personalised household products: As more people aim for a “personalised trendy style” and look to express their personal taste, the demand for custom-made furniture and household goods has expanded. The market prospects for trendy smart household goods and creative personalised household goods are bright.
Financial investment: The mainland middle class are receptive to new investment products, and some of them are willing to pay to enjoy better quality and more professional services. The demand for financial investment products, wealth management and planning services will gradually increase.
Trendy and personalised services: The service sector will continue to undergo segmentation, branching out to meet the demand of the middle class for trendiness and personalisation. Custom-made sporting/fitness counselling, micro plastic surgery and beauty services, training in pursuing lifestyle interests and in personal enhancement, and the provision of outbound individual travel platforms are examples of such services.
Automobile after-sale services: As mainland middle-class consumers’ car ownership rises, the demand for auto maintenance, repair, second-hand transaction, and driver services is bound to expand.
The survey’s findings suggest that the following sales channels and marketing strategies are likely to prove effective:
Promote offline, sell online: The emergence of the “internet lifestyle” is driving O2O commerce to shift to the “promote offline, sell online” model.
Niche positioning offline, big data analysis online: To effectively draw consumers to physical stores, the stores must have unique features, while big data analysis carried out online helps disseminate the right product information to target customers. Making good use of social media for promotion is a vitally important strategy.
Mobile first: As the “internet lifestyle” is increasingly moving towards mobile and palmtop, industry players must devote more efforts to gaining knowledge about consumers’ internet lifestyle and sharpening their skills to tap the “mobile lifestyle” market.
Viral offer sharing: In view of the fact that consumers are attracted by special offers at shopping sites and often share with friends instantly on social media, more and more referral offers are appearing on the market. After a user places an order and shares this activity on social media, he and his friends become eligible for special offers. Viral offer sharing is becoming an increasingly powerful tool of customer acquisition.
The survey was carried out in January 2017 in eight mainland cities where a total of 2,000 consumers were polled by online questionnaire. Before conducting the questionnaire survey, six consumer focus group discussions were held in Shanghai, Wuhan and Chengdu (two in each city). The objective of the focus group discussions is to further understand the spending mentality of mainland consumers by way of qualitative analysis.
 See Appendix for details of the survey.