Introducing ‘Chuppies’ Who they are and how they will change the consumer landscape forever by Chris Maloney http://www.maloneyonmarketing.com SMASHWORDS EDITION Copyright © 2010 Chris Maloney Smashwords Edition, License Notes This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author Chapter 1: Introduction The Asian marketplace is far too diverse to write a 3,000 word paper covering all of the unique markets in any depth. For this reason, this paper will focus on the country which is projected to having the biggest impact on redefining the Asian marketplace, China. Up until now China’s dramatic economic growth has primarily been driven by foreign investment and its seemingly endless source of low cost labour. But many experts are predicting that we will soon see a boom in consumption, with China predicted to become the second largest consumer market by 2015, overtaking Japan, Germany and Britain,to only be behind the United States (Euromonitor International 2007b). For a long time it has been a fantasy of Western brands that China would become consumption driven, with 1.3 billion people and as the analogy goes, 2.6 billion armpits requiring deodorant (McEwen et al). Currently, China’s consumer economy is approximately the same size as Italy’s, but within the next two years it is predicted to commence adding an Italy every year (Euromonitor International 2007b). A recent McKinsey report titled ‘From Made in China to Sold in China’, estimated that over 700 million Chinese will be classified as consumer class by 2020, leading to annual consumer spending of $2.3 trillion a year. (Euromonitor International 2007b) This paper will look in detail at the group that is at the forefront of the Chinese consumption revolution and predicted to be the most powerful consumer group in the world within the next 15-20 years, ‘Chinese yuppies’ or as they are affectionately known,‘Chuppies’ (Fang 2006). Chapter 2: Who are ‘Chuppies’? Although lacking a formal definition, ‘Chinese Yuppies’ which I will refer to from here on as ‘Chuppies’ are generally agreed to be made up of Chinese, young, urban, upwardly mobile, middle class consumers (UPS 2006c). They are generally white collar and have almost 100% disposable income because most live at home with their parents and have no debt (Barrett 2006). Most ‘Chuppies’ live in big cities such as Shanghai and Beijing on China’s eastern seaboard (Economist 2004b). For marketers, the most important behaviour displayed by this group is their incredible appetite for conspicuous consumption and embracement of Western lifestyles and products, a significant change from the Chinese way of life that Chairman Mao promoted (Euromonitor International 2007b). Given the lack of a formal definition, and the notoriously unreliable data available on China, there are different estimates on the size of this most important consumer group. Fang (2006) estimates that they are currently 100 million middle class Chinese and by 2010 this figure will reach 200 million. Swinburn (2005) agrees with this figure stating that there are “114 million mass affluent Chinese earning more than AUS$80,000 per year”. McKinsey estimates that there is currently 23 million upper middle class households in China and this will reach 220 million by 2025 (Kingsbury 2007). What ever estimate relied upon, the size of this group is significant already, and it will grow exponentially. Whilst 100 million consumers only represents less than 1% of China’s total population of 1.3 billion, we must note that even medium sized cities in China have populations larger than Switzerland, so it doesn’t matter if the ‘Chuppies’ consumer group is a small percentage, it is still a very respectable market on a global scale (Chandler et al 2004). Chapter 3: What has caused the rise of ‘Chuppies’ and what drives their consumption behaviour? One Child Policy leads to ‘Little Emperors’ In the late 1970’s the Chinese government implemented the ‘One Child Policy’ which discriminated against families with more than one child. These policies lead to a typical family structure of one child, two parents and four grandparents. With “six pockets and one mouth” these families spend considerable attention and funds on their only child. The children have grown up without siblings so they lack the concept of sharing and the traditional family and community before personal desires Confucian values. Parents will buy everything that their child wants, leading to a generation known as “Little Emperors” that are self important and have a sense of entitlement, along with the pressure to succeed to improve their family’s ‘face’ (Euromonitor International 2007). Many of the first ‘Little Emperors’ are now in their 20’s, and their self importance has translated into rampant consumerism, instant gratification, and demand for luxury goods. This age group, 20-29 year olds are the highest earning age group in China and therefore possess significant purchasing power. They believe that owning luxury goods is a symbol of their success. The ‘Little Emperors’ have become ‘Chuppies’ (Euromonitor International 2007). These former “Little Emperors” like to try new things such as foreign products and are very brand conscious. A survey of the group by Hill and Knowlton (Economist 2005), found that their favourite brands in order, Nike, Sony, Adidas and BMW, were all foreign. Given the attention that they get at home being the only child, more ‘Chuppies’ choose to live with their parents than rent, even if they have well paying jobs and could support themselves financially. This means that their disposable income is that much higher to spend on themselves (Hsu 2007). China’s Economic Revolution Opens Doors for Foreign Culture ‘Chuppies’, unlike older Chinese consumers have only seen relative stability and economic prosperity (Fang 2006). They have embraced the 1990’s credo of former leader Deng Xiaoping “to get rich is glorious” (Chandler et al 2004). They have grown up with money and are well versed in marketing messages, meaning they have a disposable income and know what they want to spend it on (UPS 2006). Whilst the Chinese government continues to monitor threats to the Communist party, such as retaining control over the Internet (the BBC website is not available and Google and Wikipedia is censored), it has had to relax its control over the culture as part of its accession to the World Trade Organisation, by letting foreign firms enter the market. This opening up of the market and the influx of multinationals has lead to Western culture, particularly relating to consumption, becoming more attractive to ‘Chuppies’. The popularity of McDonalds and Starbucks, as well as Hollywood movies and iPods are good examples of this trend (Euromonitor International 2007). The Younger Generation’s Appetite for Credit Given the prospering economic environment they have grown up in, ‘Chuppies’ have completely different attitudes to credit than the older generations who save up to 40% of their income. ‘Chuppies‘ use credit cards for shopping (including online) and supporting their demand for luxury products now, and in 2005 the average spent per card was RMB2,000 (Euromonitor International 2006). A UPS (2006) survey of ‘Chuppies’ indicates that more than half use credit cards for shopping, and 84% expect their usage to increase in 2007. Another study by Hsu (2007) found that “80% of Chuppies surveyed owned at least one credit card, which is 10 times the national average”. ‘Chuppies’ save very little, and the Chinese have come up with a term, ‘yue guang zu’, for those who spend all of their income. (Euromonitor International 2007b) MasterCard and Visa estimate that there will be 75-100 million credit cards in China by 2010 (Euromonitor International 2007b). The availability of credit in the market greases the wheels of an economy, and this will assist in the Chinese government’s vision of becoming consumption rather than investment driven. The Importance of ‘Face Consumption’ According to Li and Su (2006), ‘face’ is similar to the “kind of prestige that is emphasized in the United States: a reputation achieved through getting on in life, through success and ostentation”. Face consumption is defined as “the motivational process by which individuals try to enhance, maintain or save self-face, as well as show respect to others’ face through the consumption of products.” (Li and Su 2006) Attitudes to face consumption have changed dramatically from any form of conspicuous consumption being frowned upon to today when ‘Chuppies’ love to show off their status. However, luxury purchases are different to that of Westerners who seek out discreet products that will only be noticed by those “in the know”, ‘Chuppies’ prefer heavily branded items that scream “Look at me, I am rich” (Economist 2004b) However, ‘face’ must be seen for its social rather than individual context. ‘Chuppies’ feel they have to purchase certain products if their social group has done so, known as 'consumptive anxiety'. And they must be either name brands or expensive, otherwise they cannot stand for ‘face’. This can appear irrational to Westerners, as ‘Chuppies’ will seek out luxury goods before they have secured basic necessities such as food, housing and clothing. (Li and Su 2006) Celebrities are proving to be effective marketing tools in demonstrating face enhancement value of specific products. UPS (2006b) found that 46% of Chuppies say they like celebrity endorsements in advertising. The quality of products consumed is also a demonstration of ‘face’. The UPS (2006) study found that 85% of ‘Chuppies’ claim quality is the main factor in their purchasing decision especially for high tech electronics such as mobile phones and laptops. However, surveys by McEwen et al (2004) found that only 21% of ‘Chuppies’ think that domestic products are of good quality. The perception of foreign brands is significantly higher. It is important to note that in Western countries, “brands merely suggest quality”,whereas for ‘Chuppies’, the “brand defines quality”. (Euromonitor International 2007b) Chapter 4: What products are Chuppies demanding and how are providers meeting these needs? Luxury Goods China is currently the third largest luxury goods market behind Japan and the US, and by 2016 will make up 25% of the worlds luxury goods sales (Euromonitor International 2007b). ‘Chuppies’ are looking for brands that are obvious symbols of wealth. Many foreign luxury goods brands have dipped their toe in China, including Armani, Louis Vuitton, Zegna, Prada, Dior, Omega, Rolex, Versace, Cartier and Chanel. All have opened stores in Hong Kong, and increasingly the major cities such as Shanghai and Beijing in mainland China. These foreign luxury houses have learned that they should play up their foreign origins as it exudes quality. ‘Chuppies’ also prefer products where logos are prominent and there is conspicuous brand identity (Chandler et al 2004). 85% of ‘Chuppies’ are aware of the top European designers, and unlike America and Europe most of those purchasing luxury goods are those under the age of 30. Electronics and Mobile Phones One of the most amazing factors in China’s consumer economic development has been the leapfrogging of technology. The Chinese market has bypassed VCR’s straight to DVD, skipped dial up internet and gone straight to broadband, and moved from landline to mobile phones at a dramatic pace. (McEwen et al) The percentage of expenditure on high technology electrical goods has increased over the last five years and is expected to continue (Euromonitor International 2006). CD/DVD players, MP3 players, digital cameras, and laptops are the most popular. A survey by Hsu (2007) found that every ‘Chuppie’ owns at least one mobile phone. More than 80% of all urban residents own a mobile phone, and 33% say they’re intending to buy a new one in the coming year. (McEwen et al). ‘Chuppies’ only go for foreign mobile phone brands such as Nokia, Motorola and Ericsson, despite Chinese made mobile phones making up 40% of the market. This is due to quality and fashion perceptions. Nokia has promoted fashion over function and has seen it dominate Motorola and Ericsson, a distant second and third (McEwen et al). Cars In 2004, cars were only owned by 10% of those in the highest income bracket (McEwen et al.) However with 5 million cars sold, China is now a bigger market than Germany and in 2007 is expected to pass Japan, making it second only to car nuts America(Economist 2004). There is an estimated market of 100- 130 million potential car buyers which would result in China make up the majority of multinational brands world wide sales (McEwen et al). Many foreign brands have set up factories and dealerships in China, including Volkswagen, Lexus, Ford, Aston Martin, Jaguar, Cadillac, Mercedes, BMW, Ferrari,Bentley and Rolls Royce. Small cars, in particular VW Polo and BMW models are most popular with ‘Chuppies’ (Euromonitor International 2006), however domestic manufacturers, such as Chery and Shanghai, are quickly improving the quality of their products to compete with the foreign brands. Surprisingly most ‘Chuppies’ don’t own cars. This is primarily because they live in the big cities where the public transport is efficient and it is expensive to own a car due to “additional taxes and fees to register vehicles” (Hsu 2007). The big cities are much like Manhattan, New York in this respect, and hence most residents avoid owning cars. Food Foreign hypermarkets such as Carrefour, Auchan, Wal-Mart, Metro, and 7-Eleven have become popular places to purchase food, as they provide ‘Chuppies’ with air conditioning no need to haggle, and the ability to buy in bulk and store at home, which were the previously the downsides of open fresh food markets (Euromonitor International 2006). In addition to using foreign hypermarkets to purchase food to eat at home, ‘Chuppies’ eat out at least three times a week, including Western-style restaurants such as Pizza Hut or KFC at least once a week (HSU 2007). Clothes and Footwear The Chinese apparel market is worth $60 billion (Kingsbury 2007). ‘Chuppies’ have stated that they will “scrimp on food, but not on clothes." (Chandler et al. 2004) ‘Chuppies’ want clothes that reflect their personality, and for women, clothes, footwear and cosmetics are their biggest expenditure items. (Euromonitor International 2006). Recently, male ‘Chuppies’ have started taking more notice of their appearance and want to pay premium prices. Kingsbury (2007) notes that "it is a fatal mistake to discount for the Chinese customer, as young people want clothes that aspire to luxury.” The American brand Nike is one of the most popular amongst ‘Chuppies’. Despite major competitor Adidas sponsoring the Beijing Olympic Games in 2008, Nike’s expensive sneakers continue sell out. The New York Times reported that the $250 Limited Edition Zoom LeBron III sneakers sold out in China within two hours (Sender 2006). The UPS (2006) survey confirms that more than 70% of ‘Chuppies’ want to purchase American shoes, and 64% say want to purchase blue jeans (which are still in their infancy in China). Cosmetics and Toiletries International brands have gained a large market share is China, the world’s biggest market for cosmetics and toiletries (Euromonitor International 2006). Female ‘Chuppies’ are demanding “status-enhancing products (such as whitening products), luxury packaging, spa-quality treatments and medicinal ingredients” (Grubow 2006), and they can afford top quality foreign brands such as Lancôme, Chanel, and Shishedo (Euromonitor International 2006). The UPS (2006) survey showed that moisturiser is the ‘Chuppies’ most demanded American product with 73% intending to purchase in 2007. They prefer Western or American packaging that denotes “luxury and status such as heavy glass containers” (Grubow 2006). Chinese women won’t buy cosmetics in plastic, even if it has more product in it. Chapter 5: The Counterfeit Issue Counterfeiting is one of the major reasons luxury brands have stayed out of China for so long, but that is changing. In 2005, China accounted for 63% of all seized counterfeit goods in the world (Derby, M et al 2005). The government has had to start enforcing counterfeiting as part of its entry into the World Trade Organisation, and also as it realizes that billions of dollars are being lost in tax revenues. Counterfeiting has been described as “flattery of the worst kind”. Loke Khoon Tan notes that there is only one word to describe counterfeiting in China today: endemic. Like the Sars epidemic, it is serious and deadly to your business.' (Media Asia 2004) Burberry state that they “frequently see counterfeit goods being manufactured in the Burberry factory through the night by a different workforce from the daytime shift" (Derby, M et al 2005). Despite this, lured by the low cost of production, many luxury brands such as Coach, Paul Smith and Armani have already moved their manufacturing to China (Economist 2004b). But in general the major luxury brands are not too worried about counterfeiting. Omega does not believe that “Chinese are natural consumers of fake products when they can afford the real thing" (Economist 2004c). ‘Chuppies’ are happy to mix up cheap counterfeits with genuine products however they do value the difference (Economist 2004b). At the end of the day, the increasingly wealthy and sophisticated ‘Chuppies’ will act as a key enforcer in the fight against counterfeit goods (Euromonitor International 2007b) Chapter 6: Conclusions ‘Chuppies’ are predicted to be the most powerful consumer group in the world within the next 15-20 years (Fang 2006), and they are already starting to make their mark on the balance sheets of multinational companies. The most promising trend is ‘Chuppies’ preference for Western brands as they are seen as higher quality than domestic products, and they are willing to pay a premium price. The foreign providers that will succeed in China are the ones that can emphasise the ‘face’ enhancing properties of their products, and those that can get members of reference groups to purchase their products, as word of mouth will prove to be the most effective form of brand development in China. Chapter 7: References Barrett, L.C 2006; ‘Chuppies, Roommaids and Techno-palooza’, Columbia Journalism Review, Tue 25 April 2006 Chandler, C et al. 2004, ‘China Deluxe’, Fortune; 7/26/2004, Vol. 150 Issue 2, p126-131 Derby, M et al 2005, ‘Vendors Step Up Efforts in Counterfeit War’, Women's Wear Daily, 4/11/2005, Vol. 189, Issue 77 Economist 2004, ‘The rich hit the road’, The Economist, 6/19/2004, Vol. 371 Issue 8380, p60-60 Economist 2004b, ‘Luxury's new empire’, The Economist, 6/19/2004, Vol. 371 Issue 8380, p59-60 Economist 2004c; ‘Psst. Wanna real Rolex?’, The Economist, 1/24/2004, Vol. 370 Issue 8359, p55-56 Economist 2005; China's golden oldies. 2/26/2005, Vol. 374 Issue 8415, p65-65, 1p, 1c Euromonitor International 2006, ‘Consumer Lifestyles – China’, September 2006 Euromonitor International 2007, ‘China's little emperors control the purse strings’, 21 August 2007 Euromonitor International 2007b, ‘China: Country Pulse’, 31 July 2007 Fang, B 2006, ‘Spending Spree’, U.S.News & World Report, 4/23/06 Grubow, l 2006, ‘Chinese Culture and its Effect on Skin Care Trends in China’, Marketing Matters, GCI, August 2006 Hsu, R. 2007; ‘China Investing, Profit from the China Miracle’, viewed 7 October 2007, <http://chinainvestingadvice.com/> Kingsbury, K. 2007, ‘H&M Sets Up Shop in China’, Time South Pacific (Australia/New Zealand edition); 7/16/2007 Issue 27, p55-56 Li, J.J & Su, C. 2006, ‘How face influences consumption, A comparative study of American and Chinese consumers’, International Journal of Market Research, Vol. 49 Issue 2, 23 February 2006 McEwen et al, ‘Inside the mind of the Chinese Consumer’, Harvard Business Review Media Asia 2004, ‘Counterfeit warning amid praise for China's potential’, Media Asia, 12/17/2004, p10 Sender, I. 2006, ‘U.S. Brands Storm the Asia "Beachheads"’, Business Week Online;3/16/2006, p13 Swinburn, A 2005, ‘Chuppies bank on Aussies’, B&T, 2 December 2005 UPS 2006, ‘“Made in America” is hot with China’s “Chuppies”, UPS 2006 China Survey Press Release, Aug. 21, 2006 UPS 2006b, ‘Communicating Quality: Marketing to China's Diverse Consumers’ UPS 2006 China Survey, Aug. 21, 2006 UPS 2006c, ‘Will Plastic Become Fantastic? Credit Card Use, Internet Shopping Rise in China’, UPS 2006 China Survey, Aug. 21, 2006 UPS 2006d, ‘One Size Does Not Fit All’, UPS 2006 China Survey, Aug. 21, 2006 . Introducing ‘Chuppies’ Who they are and how they will change the consumer landscape forever by Chris Maloney http://www.maloneyonmarketing.com SMASHWORDS. companies. The most promising trend is ‘Chuppies’ preference for Western brands as they are seen as higher quality than domestic products, and they are willing to pay a premium price. The foreign. 2007). Clothes and Footwear The Chinese apparel market is worth $60 billion (Kingsbury 2007). ‘Chuppies’ have stated that they will “scrimp on food, but not on clothes." (Chandler et al. 2004) ‘Chuppies’