Chinese Consumer Behavior In Retail Marketing Essay

Since the beginning of the reform and opening up policy in China and its entry into the WTO, China has gradually become the world’s fastest growing economy, globally ranking second in terms of GDP right now. It has become a priority for many multinationals wishing to do business with China. Retailing is one of the industries that developed most rapidly in China since the 1990s source. It has gone through the growth of retail formats of supermarket, department store, convenience store, exclusive agency, outlets, warehouse supermarket, online shop, etc. in less than 30 years, a development which took over a hundred years in the western world. As agreed upon entry into the WTO, China has lifted its restrictions on areas and numbers of foreign retail brands in 2004 and on shareholding in 2005. The Nations Bureau of Statistics shows that, in 2011, the total retail sales of consumer goods were around 18.4 trillion RMB, 17.1% more than in 2010, and is estimated to be over 20 trillion by 2020 source. This clearly indicates China to be an important market.

Yet Chinese history and culture cultivates a unique consumer culture, which is worth great attention from foreign brands. On one side Chinese consumers are unique and traditional, inheriting totally different values from their ancestors; on the other, there is no denying that the country and the people are becoming increasingly modern and international. Changes of these brands’ marketing strategies are required to cater for Chinese interests and consuming behavior in order to generate more precious brand assets. It is worthy of discussing how these brands adapt to the Chinese culture and what other brands, both Chinese and western, can learn from such transformations.

1.2 Research questions

In this article, the author mainly discusses about how western catering brands’ retail strategy adapt to Chinese consumer culture, with 4 sub-questions:

How do Chinese retail consumer behaviors differ from those of western retail customers?

How do catering retail brands market their products outside China?

To what extent did they change their retail strategies in order to adapt to China?

How did their changes contribute to brand loyalty?

It is a qualitative research study that uses case study analysis. It is innovative because most of previous researches concerning cultural adaptation in China are theoretical from a broad perspective. Furthermore, a few case studies with solid data are merely about the Chinese clothing and textile industry. Thus, this research can add value to the study of Chinese consumer behavior and foreign brands’ strategic adaption in China.

Chapter 2 Literature Review

It is meaningful to present the similarities and the differences of Chinese and western consumer culture and to give a general look at the catering industry in different backgrounds. Since the United States is the most developed country in business and dominates the western consumers culture, the author uses America as an example when analyzing the western consumer behavior. Then the author identifies the difficulties of western brands entering China based on the first two discussions and describes the awareness of brand loyalty among Chinese, which is a great factor to measure the success and popularity of a brand.

2.1 Chinese and western consumer behavior in catering retail

In the following section, the author introduces Chinese and western consumer behavior separately in order to provide a clear background for the following case study on how Chinese consumer respond to a foreign brand. The discussions of both consumer behaviors begin from a general look of traditional values and then describe how different consumer cultures reflect their values.

2.1.1 Chinese consumer behavior in retail

Chinese culture is largely determined by Confucianism, the fundamental philosophy that has shaped Chinese values for thousands of years (Yau, 1994. From Confucianism derive root culture, golden mean, relationship-oriented culture, and face saving Lu, 2005.

Unique consumer culture cultivates distinctive consumer behaviors. According to Lu, Chinese consumer behavior differs from western consumer behavior largely in the decision making process. Conservative consumption and high sensitivity to the price leads to a much more prudent buying attitude. Besides, relationship results in the disaccord between consumers and users. Repeatedly weighing the symbolic meaning against the cost is a must when buying a gift. Moreover, saving face and golden mean pushes consumers to follow the trend neither too closely nor from too far away. It often takes Chinese a longer period to collect data and to define the worthiness of the product, with so many aspects needed to be taken into consideration.

Root culture is the first cause far from negligible to Chinese consumer behavior. Root culture represented by family line xianghuo, clan, kinship, and love for hometown is the core part of Chinese culture. Aiming at continuing and inheriting, root consumption includes buying for education for next generations, ancestor worship for former generations, ritual, real-estate, and celebration. When it comes to such products, the demands are almost inelastic to the price or other discouragements, such as the inconvenience of location. The importance of such topics adds to the complexities of Chinese consideration in buying process.

Hu and Groove1999 argue that face-saving also plays a vital role in explaining Chinese consumer behavior because face mianzi as ones’s social worth represents the social status and the wealth of a person. More important than its similar notion to Western concepts of dignity and prestige Yau, 1994, face means one’s reputation and social standing. It is gained if conduct above the average level is considered acceptable, while lost when some essential requirements corresponding to one’s social position are not satisfactorily met Ho, 1972. In Chinese society, individuals have no identity apart from obligations to, and acknowledgment by, others. The clan and nation are the eternal pillars of identity Doctoroff, 2012. People need to be extremely cautious about their face, saving it by meeting the expectations of society.

Together with golden mean and relationship, face saving generally leads to conformity consumption, panbi consumption consuming products beyond one’s ability in order to show off and compare with others, conspicuous consumption and symbolic consumption for one’s own, and relationship consumption and present consumption for others Lu, 2006. The former three bring Chinese pride, reputation, satisfaction from others’ compliments, and a high-end lifestyle. The latter two, including products paid by organizations instead of individuals, e.g. a sumptuous dinner, and products like over-packaged moon cakes bought as presents for superiors, clients and relatives, indicate the esteem and social status of people who eventually consume the product.

It is true that China has gone through dramatic social changes since the beginning of the open and reform policy in 1978. These changes have simultaneously carried Western ideas into China and shifted the traditional Chinese values and ways of thinking Bai, 1998; Ng, 2004, Wang, 2006. Christmas and Valentine’s Day are celebrated by 37% of Chinese despite of Spring Festival and Magpie Festival Chinese Valentine’s Day. Tea culture has had quite a long history in China while American carbonated drinks account for 70% of the Chinese drinks market. Chinese consumer behavior is becoming modernized and has more characteristics: In the report of McKinsey’s research on Chinese consumer behavior in 2010 Atsmon, Dixit, Magni and St-Maurice, 2010, shopping is more than just a way of buying, but a kind of entertainment; consumers go shopping less, but buy more each time; good brands with reasonable prices are the most attractive; core benefits alone seldom satisfy consumers in most of consumption; word-of-mouth contributes more than ever to a brand’s reputation. These changes result from the wide use of the Internet, tons of foreign companies entering the Chinese market, and such social changes as increased salary and literary rates.

Though the country’s economy and society are evolving rapidly, the underlying cultural blueprint has remained more or less constant for thousands of years. China is a quixotic combination of top-down patriarchy and bottom-up social mobility. The fundamental of the west, individualism-the idea of defining oneself independent of society-doesn’t exist Doctoroff, 2012. It seems that foreign brands from economically developed countries carry symbolic values, such as success, glitter, empowerment, and new/international life Swoboda, Pennemann, and Taube, 2012. However, one can never win Chinese hearts if Western brands craft their messages to be “foreign” instead of “global”.

Face saving continues to exert a great influence on modern Chinese. Judging one’s consumption is a direct and increasing popular measurement of such social wealth: to most Chinese, brands not only guarantee quality but also bring face Gong, 2003. That is the reason why public display is a critical consideration for global brands repositioning themselves in China. Doctoroff 2012 recently argues that the price of products used in public is higher than that of those used privately. Leading mobile phone companies are foreign brands while domestic sellers are leaders in the home appliances market because people do not show their washing machines to others. China is the biggest buyer of luxuries; in France 15% of luxury products are consumed by Chinese who are less than 2% of the tourists. Root culture nourishes various training agencies like New Oriental and Longwen One to One, helping students to pass in their final exams. Even Disneyland is more successful in teaching English than in opening theme parks in China. With Golden mean, Chinese consumers are often caught in the conflict between standing out and fitting in, between ambition and regimentation Doctoroff , 2012. Men want to succeed without violating the rules of the game, which is why wealthier individuals prefer Audis or BMWs over flashy Maseratis.

Complex as it is, Chinese consumer culture can never escape from traditional values, even though mixed with global characteristics and exhibiting new features. Penetrating in everyday life, the retail industry is a mirror reflecting directly Chinese consumer behavior. Since eating is also an important aspect of Chinese culture, catering retail presents clearly how western brands transform in China in order to be attractive.

2.1.2 Western consumer behavior in retail: The U.S. example

Again, culture cultivates its consumer culture. American’s overconsumption results from several fundamentals in its beliefs: gastronomy, sense of achievement, hardworking, pragmatism, freedom and independence Liu, 2011. Saving means nothing to Americans-it is only a number. Money can never work for people unless it is spent to exchange for value. At the same time, America is economically developed and mass production guarantees various goods to consume. The attitude of “enjoy the moment” prevails all around the nation. Originating from Calvinism, pragmatism is strengthened by the hardship in the early expansion of America and is often called Americanism. It focuses on results and facts rather than former conditions or assumptions, emphasizing utility, competition, and enterprise. Individualism thus again gains its popularity. From this perspective, concepts such as hardworking, sense of achievement, freedom and independence come out of pragmatism are treasured by most of Americans. The wealth and consumption level often serves as the measurement of success in one’s career and contributes to one’s sense of achievement and independence. Therefore, consumption takes an important place in Americans’ heart.

America’s lifestyle was once described as “Consumers go shopping as long as the sun rises” by the media. Individual consumption in America takes up 2/3 of total consumption. According to Associated Press, in 2006, 90% of total income was spent on consumption while 13% was on paying back loans, which means Americans must take out new loans to keep on living. Although overconsumption indeed is one significant feature of American consumer behavior, frugality is also common in America’s consumption. Lacking the pressure of face saving and influenced by pragmatism, Americans buy necessities generously and unnecessities sophisticatedly. Many middle class people live prudently with cheap cars and second-hand books. It is also true that factors such as promotions of high end consumption and higher income levels are encouraging Americans to consume more expensively. But the tradition remains and comes back now and then: after the subprime crisis, Americans are now living with a new generation of prudence.

2.2 Catering retail marketing in United States and China

In this section, the author discusses the catering industry in the U.S. and China from a historical perspective, aiming to set a contrast of features of catering retail marketing between two countries.

2.2.1 Catering retail marketing in China

Since the open and reform policy in the 1980s, catering in China has witnessed primary starts, expansion in numbers, chain store development and brand building. Now in the fourth phase, the industry is in its rapid growth with 11 companies generating over 33.7 billion revenue in total. Chain restaurants are centralized in the east of China yet are grabbing the mid and west market quickly. source

Cooking ranks high among Chinese values so that catering is often the most prosperous industry in the whole economy. With demand and supply around the nation almost at equilibrium, the catering industry shows its Chinese characteristics, according to the report jointly published by China Chain Store and Franchise Association, Deloitte and Ernst & Young in 2008. There are various retail forms, including hotel catering, restaurants, food stands, cafes and bars. Among which, chain stores sustain the momentum and account for 75% of the food market share with over 2400 shops and 21.5 billion RMB in revenue; 95% of restaurants have over 10% annual growth in the last 3 years, indicating a favorable status quo. Although the price of raw materials is increasing, return seldom shrinks. In 2007, with cost increased 20% on average, 78% of chain stores maintain or have even higher profit margin.

However, catering is facing challenges such as investment deficiency, fierce competition, shortage of employees, rising management costs, and a lack of government support. Franchised stores also need to deal with the problem of standardization of products and services across largely different areas in China. Luckily, most of the big companies focus on long term development and have implemented strategies including branding, differentiation, innovation, logistics integration. With positive projection on future industry development, restaurants, especially chain stores like Quanjude Peking Roast Duck and Xiaofeiyang Hot-pot, are opening up a fixed number of new shops.

It has been years that foreign fast food restaurants have taken up a large amount of Chinese market share with sufficient capital and efficient management. Sold in theme restaurants, hamburgers and coffees have established a quickly-copied revenue model. In response, local food dealers are branding themselves as the most suitable for Chinese appetites and stomachs. The competitive catering market in China now requires special marketing to gain consumers’ love.

He 2012 forecasts the future trend of catering marketing in China: market segmentation is getting more and more detailed, of which the segment terms includes not only target people, style and flavor of dishes and consumption level, but also dining environment within restaurants and psychological needs of customers, for example, weather condition, time, customers’ company and moods. Therefore, restaurants should be differentiated in order to survive in such a crowded market. Another result of this is that restaurants are no longer competing alone but in group form. Under a large catering group there are often many small subsidiaries with unique features covering different segments. It is an effective way to get economy of scale and to help build strong brands.

Franchising and localization is also a trend of catering retail in China. Since the Chinese market is complex¼Œconsisting of different nationalities and cultures, franchised stores can satisfy common needs shared by Chinese with standardized products and different needs varying from place to place with local specials.

Thirdly, forming allies with up and down stream partners is increasingly popular to lower the cost due to the high-level price of raw materials and rocketing rental fees. Besides, faced with increasing concerns of food safety issues, cooperation can guarantee the quality effectively and efficiently.

Adequate and systematic services such as online booking, parking lots and credit card payment support should also be taken into consideration for the success of a food provider. These details may contribute to the whole impression left on customers and the words chosen when they recommend the place to others.

In general, branding and differentiation are the major trends for future development of catering retail in China, since customers are critical and have varied wants. From a dinner or a cup of tea consumers want to more than just a response to their huger or thirst but enjoy the moment when they see, taste, smell, listen and feel. What makes them recall and come back next time is the culture of the brand.

2.2.2 Catering retail marketing in the U.S.

Catering in the U.S. is vast with a total revenue 6.6 times of that of China. Most of American restaurants are small, while the top 50 accounts for 20% of turnover of the whole industry. As the mainstay, giants are influencing the marketing processws of other catering companies. With chain store management, branding, America’s global marketing was called “the revolution of modern catering” Chen, 2003.

Franchising is the major form of catering retail in the United States. Giant Global companies such as McDonald’s and Burger King not only replace scattered restaurants in the past but also become globalized and shape catering fashion around the world. With the development of franchising, fast food restaurants along the freeway providing packaged food for drivers prosper as well. It is quite unique in America where freeways are well-connected and cars are common in each family. Novel marketing strategies of these quick-serving, featured, and energetic brands are pushing them to expand rapidly both domestically and internationally.

Expansion with associated brands helps successful marketing in America. Fast food restaurants, instant food suppliers and supermarkets are working together to grab market share providing fast food like self-help salad, sandwiches and hamburgers. and vacuum-packed and pre-cooked food. They share distribution channels and target markets and build reliable brands in customers’ everyday life.

Dish innovation is another huge characteristic of US catering. No matter whether it is regarded as melting pot or salad bowl, America has nations and emigrants from all over the world. Thus, restaurants often hold gourmet festivals featuring different cuisines such as crab meals, barbeque, and Russian cooking, to arouse curiosity in customers and attract them. Besides, healthy diet marketing makes green food restaurants like Subway popular across the nation even though it is charging prices 20%-30% higher than other ordinary foods.

Food delivery services originates from the United States and is also a newly developing part of retail marketing, thanks to the modern telecommunication technology and universal Internet. Pizza is the first benefiting from such service and became popular later. Yet nowadays almost every kind of food has food delivery to keep up the pace with customers’ needs.

2.3 Challenges of adapting catering retail marketing to China—- a cultural perspective

American catering suppliers have generally two advantages: better industry-specific technology and innovation capabilities, and higher level of managerial competence such as marketing and brand building Williamson and Zeng, 2004. However, they also face fundamental challenges that must be overcome to compete with Chinese restaurants. The following analysis presents only a part of these challenges from the cultural perspective.

The first one is the difference lying in oriental and western underlying values. As discussed earlier, even if Chinese consumers have a much more open mind and a globalized favor of products in the world, they remain traditional and Chinese at heart. They have values such guanxi relationship and mianzi face saving, which are totally different from westerners’ and are the last thing to be neglected by western companies.

Secondly, various terrains make Chinese culture and traditions differ from place to place. These subcultures also have long history and play a vital role in predicting consumer behaviors. For instance, southern customers prefer rice to wheat while northern people are just the opposite. Generally flavors are spicy in the Yangtze River drainage area, sweet in the Pearl River basin and ordinary in the Yellow River drainage area. Enterprises need to develop market research in detail and pay attention to these differences.

Furthermore, with the openness of the society and the development of the economy, Chinese prefer “internationalized “to “foreign” products. If brands now still label themselves as big companies from the west, Chinese may sometimes feel offended and fail the brand. There is also a declining popularity of western fast food restaurants in China. MacDonald’s and KFC are no longer meals as luxury for Chinese kids in the 1980s and 1990s as nowadays. Concepts such as “eat healthy” and “protect local brands” now prevail among Chinese. It is becoming even harder for foreign companies to compete in China.

Wang 2008 suggests a few concerns for westerners to care about in order to be successful in localization: Emphasize team playing and communal and family values even if the target segment is teenagers; Use extreme caution whenever trying to make an appeal to humor or sex; Pick warm, sincere public relations activities that are modest in tone; Instill modern sensibility into familiar Chinese idioms, allusions, stories or fables. Certainly this is only a selective list and there is much, much more, but it indicates the significance and complexity of cultural adaption of west brands.

2.4 Brand loyalty in China

Brand loyalty in the retail industry is a paradox in China: on one hand, Chinese consumers rely on brands heavily, because a famous brand guarantees the quality and safety of products; on the other hand, consumers tend to have low brand loyalty with over 45% chance of switching to competitors when it comes to next consumption, according to Chinese consumer research in 2011 published by McKinsey and associated research done by Bain and Kantar Worldpanel. Less than 46% of consumers show that they have at least one typical brand to stick to while the number in the U.S. is over 73%. That is, most of Chinese are wandering among brands and not a single brand is controlling the market with absolute fans. Obviously, without enough distribution points like restaurants and stands, branding now in China cannot achieve success in the catering retail market.

However, in the future, brand loyalty of Chinese consumers is likely to increase. In the report Meeting with Future Consumer in 2020 issued by McKinsey, Chinese consumers’ tastes are becoming more and more personalized. By 2020, emotions, such as self-expression and identity extension, contained within brands are the most unshakable attraction to Chinese customers. For example, chocolate buyers who said that emotional aspects influenced their decision making took up 8% in 2009 while the number rose to 19% in 2011. It is more apparent in mid-and-upper-class than among ordinary people. With the development of the economy and increasing income of Chinese families, relationship marketing and emotional branding is going to generate more loyal customers. In the meantime, a younger generation is growing and will become the majority of the Chinese market in the near future. With higher consumption levels and literary rates, they pay more attention to their personality and have a deeper perception of brand cultures. Thus, here comes the opportunity for retail brands to market themselves as attachments to real styles and individuality.

Chapter 3 Research method

3.1 Case study research

Case study research is a very useful method as it allows for expanding and generalizing theories by combining the existing theoretical knowledge with new empirical insights Yin, 1994. Like other qualitative methods, such as action research, case study research was developed in the social sciences and was deemed to be more appropriate to the study of social and cultural phenomena than the quantitative methods of the physical sciences, such as laboratory experiments Myers, 2003.Qualitative methods are concerned with the meaning, not the frequency, of phenomena. The rationale for conducting case studies is to understand a phenomenon when quantified data do not cover it.

What aroused the author’s interest at the very beginning was the argument by Julien Cayla and Eric J. Arnould 2008 that international branding is not a universal technique that applied many times in western culture, but a culturally malleable mode of communication. Thus marketers should think about the way the cultural context influences branding activities. Not satisfied with small examples in that article, the author wants to conduct an independent research on international brands competing in foreign surroundings to further validate this theory. Case study is a helpful tool under this circumstance. As a thorough example, case study is illustrative with chronicle facts, story-like decisions and actions, and explicit consequences. The author aims to describe the way a global company takes cultural factors into account when establishing the brand and compare the results before and after. It needs little statistics because the events would be remarkable whether the business succeeded or failed. Case study is appropriate also because the data of company’s moves are easily to find, requiring neither inside information nor first-hand materials.

3.2 Research design

The purpose of this case study is to understand the influence of Chinese consumer culture on foreign catering retail brands’ marketing. The reason for choosing Starbucks to study is that the company and coffee are symbols of western culture while tea drinking is the tradition in oriental culture. The contradiction between the two is exemplified to study the adaptations that a foreign brand made to survive in China. Besides, since Starbucks is well-known worldwide and it has been in China for years. The data is accessible and reliable to use in the research. The focus of this research is the exploration of how Starbucks, an image of western culture, sells coffee in a tea drinking culture with appropriate adaptation so that it both keeps the consistency and attract and develop new loyal patrons.

The pragmatism paradigm Tashakkori and Teddlie, 1998 is applied in this article beginning with research questions and takes them as the lead to the whole single case based research. In order to answer them, the article firstly gathers information of the company and its marketing process in-and-outside the U.S. to give an overview of how this company markets its coffee generally. Then the article describes in detail the adaptation of Starbucks doing business in China, in terms of price, place, products and promotions to demonstrate the cultural changes. The analysis section consists of the comparison between Chinese consumer behavior discussed in the literature review and reactions of Starbucks customers and how the coffee company develops its brand loyalty in China.

Case studies can be intrinsic, instrumental providing insight into an issue or situation of concern or collective – based on more than one site Stake, 2000. Since it is an instrumental qualitative research, the article tries to be illustrative and informative, serving primarily to make the unfamiliar familiar and to give readers a common language about the cultural perspective research. Sources of data include documents, articles and reports from websites, newspapers and magazines, interviews and direct observations. The found information is responsible for description and presentation while the author’s observation and comparison make the analysis part.

Chapter 4 Presentation and analysis of results

The process of Starbucks becoming a global giant, especially a popular and influential coffee brand in tea drinking China, is a story worth exploring. By firstly describing the company’s development, the author demonstrates the way of Starbucks doing business and adapting to the Chinese culture in detail. In the second half of this chapter, the author analyzes the success of such adaptations by explaining how Starbucks perceived Chinese cultures.

4.1 From Starbucks to Starbucks China

Way to success

Starbucks Coffee, Tea, and Spice opened its first store in April 1971 in the Pike Place Market in Seattle.

At the beginning of the Starbucks, its original owners, Jerry Baldwin and Gordon Bowker, had a passion for dark-roasted coffee, which was popular in Europe but hard to find in the United States at the time. “They founded Starbucks for one reason: They loved coffee and tea and wanted Seattle to have access to the best.” Harrison, et al, 2005 Different from other coffee shops, Starbucks served both good-quality coffee and knowledge about its products. Jerry, a lover of literature, named the company Starbucks after the first mate in Moby Dick, because it “evoked the romance of the high seas and the seafaring tradition of early coffee traders.” Schultz and Yang, 1997 Recognizing the great potential of the Starbucks concept, Howard Shultz and David Olsen purchased Starbucks in 1987. As a private company, Starbucks grew in the next five years from 6 retail outlets and a roasting plant to 165 shops, located primarily in the Pacific Northwest Schultz and Yang, 1997.

Much of this success can be attributed to the quality of company’s coffees and the total guest experience with which it sells its products Harrison, et al, 2005. Schultz always insists on that the company’s primary goal is to offer coffee in best quality ever in the world. It acquires its own coffee beans, roasts and grinds them, and has strict controls on temperatures at which each specialty drink is mixed and served. According to the CEO himself Schultz and Yang, 1997, he joined Starbucks as its marketing director in 1982. The following year, he attended a conference in Italy and, on a casual walk, dropped by an espresso bar. He was amazed at the crowd it attracted. It was a social center. People came to talk, meet friends, and spend a little time-not just to have quick cup of coffee and leave. After discovering that there were more than two hundred thousand espresso and cappuccino bars in Italy, each serving as a local gathering place, he decided that the concept would travel well to the United States. So the company managed to open a concept espresso bar in Seattle in 1985, calling it Il Giornale. Its success encouraged Mr. Schultz and his partners to raise venture capital and buy out the original owners for $3.8 million and convert all Sta