The Weekly’s Five-Year Skinniversary

A little over five years ago a fledgling Shanghai-based marketing agency was unable to find relevant and reliable marketing information about China. Hopeful of filling that gap, that agency started the Weekly Skinny. Our goal was to aid busy marketers with concise, transparent and timely insights to assist them in making decisions, as well as demonstrate China Skinny’s understanding and expertise in the China market.

Since then, around 250 newsletters have been sent, equating to over 300,000 words – the equivalent of 25 Master’s theses – covering the latest news, trends and advice that is consumed weekly by readers from thousands of brands, public organisations and journalists.

Over that same period China Skinny has worked with over 100 brands on research, trend analysis, market entry and market growth strategies. The projects, together with authoring the Weekly Skinny has helped us intimately understand Chinese consumers and the China market. Marketing in China is barely recognisable from five years ago, with changes and trends that would happen over decades or generations in other markets transpiring over the past five years.

To mark half a decade of the Skinny, we thought it would be fitting to list five key observations we’ve noted over that period:

1. Digital China

China was late to the Internet game, but it has made up for it over the past five years. At the turn of the decade, Chinese consumers started coming online in droves.  They were finally given a voice through social media such as Weibo, bulletin boards, forums and review sites, and they took advantage of it.  Users started to leave the confines of Internet cafes with connected smartphones costing less than $100 a pop.

Yet much of what was online in China was a rudimentary rip-off of popular Western apps. Weixin (which had just been rebranded WeChat for international markets) was one of the more innovative startups with a few features that weren’t available on WhatsApp or Kik.  It had well under a tenth of the active users it does today, who used it for a fraction of the time. Even ecommerce was primitive, with almost all shopping happening on C2C platform Taobao and the majority of sales being cash on delivery.

Oh how things have changed. Ubiquitous smartphone ownership with mobile payments at 50 times the rate of in the US has enabled applications to easily monetize almost anything, creating sustainable innovations that are now leading the world. WeChat’s popularisation of the QR Code has helped heave the offline world into the digital sphere cementing O2O, the sharing economy and the Internet’s place at the heart of marketing in China.   More advertising yuan is now spent on digital than any other channel. Online sales of goods and services is now double that of China’s top-100 physical retailers.

2. Experiences

The maturing Chinese consumer is placing much more emphasis on experiences, whereas in 2012 it was all about accumulating nice things to show off status. Accessible experiences such as frothy frappuccinos at Starbucks, gaming or going to the cinema, to more aspirational travel have become a hot ticket for many consumers.  The number of overseas tourists has doubled over the past five years and a much larger portion travel beyond Hong Kong, Macau and Taiwan.  Group travel has been superseded by free independent travel, placing less focus on shopping while there, although it remains the top activity. Chinese also look for experiences in their homes, which have become larger, more modern and less of a place for functional habitation, but for enjoying the finer things in life such as nicer furniture, higher quality food and beverages and even activities such as baking.

3. Local players

All that time ago when the Weekly Skinny began, most Chinese consumers wouldn’t be seen dead with Chinese branded products. Around 70% of smartphone sales were Nokia, Samsung and Apple for example. Now over 80% of smartphones are local brands which provide owners plenty of street cred. The popularity of Japanese rice cookers and toilet seats in China was a catalyst for Beijing to introduce their Supply Side Reform to improve the standard of Chinese products.

Local movies have edged their way into bigger market shares which has a halo effect for many categories. The film industry has been helped through Government regulation and opening cinema chains in more nationalistic smaller cities, yet a lot of it is a result of Chinese movie makers upping their game. The same could be said across most sectors, where local manufacturers have learnt the trade making things for international brands, and investing in marketing, research & development and evolved to true contender status. Local brands often understand the market better than foreign competitors, and have wider-reaching distribution networks across China, which has seen them outdo foreign competitors across many categories.

4. Health & Environment

In early 2013, much of China experienced unprecedented air pollution. In Beijing for example, the air quality in January was 17% worse than smoking lounges in American airports. The Airpocalypse prompted the Government to take a more transparent stance to acknowledging pollution and helped locals realise that ‘fog’ was different to ‘smog’. China Skinny had done research in 2012 into why Chinese migrate, with a child’s education being the top reason, by far. The same research in 2013 saw pollution become the primary motivation. Living among air pollution, water and soil pollution, constant food scandals and more sedentary and stressed lives in the city than the countryside caused consumers to become a lot more health conscious overnight. Products like Oreo cookies went from doubling sales every couple of years to virtually no growth by the end of 2013 as consumers opted for healthy, and safe, food and beverages. This drove demand for good, clean imported products. The focus touched everything to an explosion of sports and fitness, with around 5 million new gym memberships signed up every year since.

5. Premiumization & Substance

In a few short years, Xiaomi became the pinup brand for smartphones, bringing fully featured smartphones to the masses for a low cost, coupled with glitzy flash sales and Apple-esque ads. Sales soared and in 2014 it became the market leader, and then growth suddenly halted. An increasingly affluent consumer class no longer just wanted something because it was cheap, they wanted value and quality. In 2015 sales of smartphones costing over $500 grew at 45% versus 2% for the market overall. The same premiumization applied to almost everything – even rice which saw 25% trade up versus 3% trade down over four years to 2015. High- and mid-end products on Alibaba’s platforms grew from 26.2% in 2012 to 34.4% in 2016. Even humble instant noodles saw sales drop by billions of tubs as consumers of all demographics opt for better quality fare.

Yet unlike a few years ago where a foreign brand with a high price tag would likely see double-digit growth, Chinese are increasingly shrewd in their evaluation of brands, both local and imported. Brands need to have substance, backed up by values that align with consumers’ own. Although Chinese consumers still love a deal, they are prepared to pay more if it is backed up by quality and value.

And that’s five. Our apologies that this week’s intro was longer than usual – we’ll try and keep it short until we’re celebrating 10 years! Go to Page 2 to see this week’s China news and highlights.

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