Evolving Brand Preferences: The Case of China an empirical study

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Evolving Brand Preferences The Case of China
an empirical study
Chicago, 25th of June 2005
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Evolving Brand Preferences The Case of China
an empirical study
Chicago, 25th of June 2005 Dr. Achim Spiller
University of Göttingen Dr. Markus Taube
University of Duisburg Mr. Matthias Schramm
University of Göttingen Mr. Torsten Staack
University of Göttingen
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Agenda

• Problem Statement Objectives
• Structure of the sample
• Brand preferences
• Overview
• Factor analysis
• Cluster analysis
• Summary

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Problem Statement

• No other market raises as high expectations as
  the Chinese consumer goods market
• a total population of 1.3 bn. people,
• increasing real income for about two decades,
• with the WTO-joining of the PR China the
  certainty for a functional market economy.

• but the opening-up of the Chinese market is no
  simple task.
• The definition of the relevant target group
  represents only one key problem (Cui, C., 1999,
  S. 56).
• Regions differ in terms of income and
  development,
• only a fraction of the 1,3 bn. Chinese have the
  ability to buy western brands (Taube 2003).

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Problem Statement

• A conservative estimation of the market
  potential could focus on the urban population
  living in the 660 cities (524 million).
• The premium brand strategy followed by
  multinational enterprises scales down the
  relevant market to the 5-10  representing the
  highest-income group.
• Thereby the Chinese market is reduced to 25-50
  million people, only 15 million dispose of
  annual earnings greater than 3.500 .
• Moreover, this calculation neglects whether
  Chinese consumers have developed brand
  preferences at all as they have been confronted
  with the concept of brands for hardly twenty
  years.

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Objectives

• This paper provides an insight into the
  different Chinese consumers types.
• It aims at detecting the brand preferences of
  Chinese high-income consumers in big cities.
• The focus lies on the comparison of preferences
  for chinese and foreign brands.
• Upon an unique dataset this paper builds a
  comprehensive consumer typology.

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Agenda

• Problem Statement Objectives
• Structure of the sample
• Brand preferences
• Overview
• Factor analysis
• Cluster analysis
• Summary

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Structure of the sample

• The survey is based on 1600 face-to-face
  interviews with consumers in the cities of
  Beijing (800) and Wuhan (800).
• The collection of data was carried out in
  cooperation with the China Economic Monitoring
  Center of the National Bureau of Statistics of
  the Peoples Republic of China.
• These two cities were selected in order to
  provide an image of the Chinese consumer goods
  market that is as realistic as possible.
• Beijing, the nations capital with a registered
  population of 11.5 million, also is one of the
  Chinese cities with a high density of
  high- income inhabitants. Thus, the city seems
  fit to represent the booming cities on the east
  coast.

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Structure of the sample response and
qualitykey data Beijing
Sample size 800 respondents in Peking 758
usable questionnaires
Response
Age/Year of birth 1940 and older
5,4 1941-1960 23,0 1961-1980 56,8 1981and
younger 14,8
Gender Male 49,4 Female 50,6
Age and Gender
Highest graduation 29,8 Junior College 25,5
High School 18,8 BA
Income per hh/month lt 1500 RMB 22,3 1500-3000
RMB 19,7 gt 3001 RMB 37,0
Graduation and Income
Persons per household
38,8 of respondents live with mate and child
18,0 of respondents live with parents
Daily food purchase
35,1 of respondents regularly buy food for the
household 50,3 of respondents sometimes buy
food for the household
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Agenda

• Problem Statement Objectives
• Structure of the sample
• Brand preferences
• Overview
• Factor analysis
• Cluster analysis
• Summary

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Structure of analysis
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Overview A slight tendency towards buying
brands...
stronglyagree
stronglydisagree
Statement
1
0
-1
2
-2
I am willing to pay a premium for my favourite
brand.
I always choose well known brands because they
are of higher quality.
Sometimes I get confused because there are so
many different brands.
Beijing
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Overview ...but not necessarily foreign ones?!
stronglyagree
stronglydisagree
Statement
1
0
-1
-2
-2
even though certain products are available in a
number of different brands, I always tend to buy
the Chinese brand.
because I trust Chinese brands more than foreign
brands.
I choose foreign brands because they are cool
and have really funny and crazy ads.
I prefer to buy foreign brands if I want to give
the product away as a gift.
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General modell of brand buying behavior of
Chinese consumers
price orientation
prestige
patriotism
brand preference
country of origin
foreign brands
Chinese brands
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Definition of the influencing factors example
price orientation
Influencing parameter
statement
... I am willing to pay a price premium for my
favorite brand.
price orientation
... I am focused on buying low priced products.
... whether any brands are available.
Each influencing parameter is tested empirically
by at least two statements.
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Agenda

• Problem Statement Objectives
• Structure of the sample
• Brand preferences
• Overview
• Factor analysis
• Cluster analysis
• Summary

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Identified factors and modification of the
original model
All in all 3 main factors influencing the Chinese
brand preferences could be identified.
prestige effect of foreign brands
1)
explained total variance 59,941
patriotism
2)
performance effect of Chinese brands
3)
Eigen-value gt 1 (min. value to be extracted as an
important factor explaining parts of the
variance) KMO 0.748 (Kaiser-Meyer-Olkin-criteria
describes usability of data) statistical
significance following Bartlett .000 (highly
significant)
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Explanation of identified factors - statements
Eigen-value
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Modified model of brand preferences explained
variance
explained variance
prestige effect of foreign brands
22,990
brand preference
patriotism
19,674
performance effect of Chinese brands
17,277
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Agenda

• Problem Statement Objectives
• Structure of the sample
• Brand preferences
• Overview
• Factor analysis
• Cluster analysis
• Summary

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Brand triangle - Bejing
no brand preference
patriotism
Chinese brand preference
foreign brand preference
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Cluster 5 (28,7) unsure consumer
characterization
factors

• Patriotism
• Prestige effect of foreign brands
• Performance effect of Chinese brands

social and demographic

• What are the condition of living? Living with
  parents 16,4, living with mate and child
  42,4
• Age? gt65 2,4 35-65 46,3 lt35 51,2
• What is the overall Income? All income groups
• What is the highest Graduation? All kinds of
  graduation reaching from High School to MA

attidutes and values

• Mostly buy on/at Chinese supermarkets 27,08
  and foreign supermarkets 13,3
• do not think that buying Chinese products will
  support the Chinese economy in any way
• sometimes get confused because there are so many
  different brands

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Agenda

• Problem Statement Objectives
• Structure of the sample
• Brand preferences
• Overview
• Factor analysis
• Cluster analysis
• Summary

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Summary

• All in all, it can be seen that Chinese
  consumers in general have a positive attitude
  towards brands.
• Altogether, five groups could be specified, at
  least three of which have a specific brand
  focus.
• This focus must be treated in a differentiated
  way, however, since the clusters of the typology
  polarize strongly with regard to the brand
  focus.
• Only the cluster of Brand Lovers exhibits a
  general preference for brands without regard for
  the provenance.
• Ultimately, an explicit preference for
  international brands could only be verified for
  roughly 40 of the consumers interviewed more
  than 45 show no brand preference at all.

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Summary

• A critical view at the Chinese market shows
  that only a small part of the Chinese consumers
  can be regarded as a target group for
  premium-priced international brands.
• The empirical analysis makes obvious that there
  is not a general preference for foreign brands.
• The purchase of these products is determined by
  various factors such as prestige. Chinese brands
  enjoy a high confidence of a large group of
  consumers and have to be regarded as competitors
  in gaining the favour of Chinese consumers.

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Thanks for your attention!
For further information
M. Sc. Torsten Staack Institute for Agricultural
Economics Department Marketing for Food and
Agricultural Products University of Göttingen
Dipl. Ök. Matthias Schramm THINK!DESK China
Research ConsultingMerzstr. 1881539 München-
Germany schramm_at_thinkdesk.de
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Cluster 1 (15) Chinese brand lovers
characterization
factors

• Patriotism
• Prestige effect of foreign brands
• Performance effect of Chinese brands

social and demographic

• What are the condition of living? Living alone
  13,1 with mate 16,7
• Age? gt65 11,8 35-65 45,9 lt35 42,3
• What is the overall Income? Cluster with highest
  low income- group (34,5) and lowest high
  income- group (12,0)
• What is the highest Graduation? High school
  26,1 Junior College 26,1

attidutes and values

• Mostly buy on/at wet markets 37,24 Chinese
  supermarkets 30,31
• thinks that Chinese supermarkets have more fresh
  products
• prefers food stores which are nearby
• believe that foreign retailers are too expensive
• strongly prefer to buy Chinese products
• strongly believe that this will generate jobs in
  China

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Cluster 2 (21,8) brand lovers
characterization
factors

• Patriotism
• Prestige effect of foreign brands
• Performance effect of Chinese brands

social and demographic

• What are the condition of living? Young
  families 55,6
• Age? gt65 3,1 35-65 50,8 lt35 46,1
• What is the overall Income? gt20 within the
  high income- group (22,0)
• What is the highest Graduation? Junior College
  30,7 BA 26 Foreign University 8

attidutes and values

• Mostly buy on/at wet markets 33,02 Chinese
  supermarkets 32,34 but also like foreign
  supermarkets (11, 54)
• when choosing a store first checks whether any
  brands are available
• are willing to pay a price premium for their
  favorite brand
• but also think that Chinese products have a
  higher level of quality than products from
  abroad

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Cluster 3 (16,4) foreign brand lovers
characterization
factors

• Patriotism
• Prestige effect of foreign brands
• Performance effect of Chinese brands

social and demographic

• What are the condition of living? families no
  kids 18,8
• Age? gt65 4,2 35-65 40 lt35 55,7
• What is the overall Income? Cluster with lowest
  low income- group (25,8) and highest high
  income- group (25,9,0)
• What is the highest Graduation? Junior College
  31,3 BA 26

attidutes and values

• Mostly buy on/at wet markets 25,38 Chinese
  supermarkets 34,15 but also like foreign
  supermarkets (14, 56 highest share)
• have strong patriotic preferences and want to
  support the national industry by buying
  Chinese products
• are willing to pay a price premium for their
  favorite brand.
• think that Chinese products have a lower level
  of quality than products from abroad.

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Cluster 4 (18,1) patriotic buyer
characterization
factors

• Patriotism
• Prestige effect of foreign brands
• Performance effect of Chinese brands

social and demographic

• What are the condition of living? Young families
  54,8
• Age? gt65 6,9 35-65 47,1 lt35 46
• What is the overall Income? high low income-
  group (29,9)
• What is the highest Graduation? High School
  23,8 Junior College 36,2

attidutes and values

• Mostly buy on/at wet markets 35,53
• want to support the national industry by buying
  Chinese products
• explicitly do not like foreign brands
• mostly indifferent towards Chinese brands