The Demand Institute projects that consumers in China will spend $56 trillion over the next decade. But China is a sprawling region and spending patterns will vary greatly. So in addition to understanding how to navigate China’s varied urban landscape, companies interested in capturing that spending will need deep insights into which consumers will drive demand. So which consumers should companies focus on? In short, the ones who are avid consumers and ready to engage with companies.
Just as there are vast contrasts in consumption patterns across China’s many cities, there are myriad differences among those cities’ residents—differences in their means, preferences and behaviors. Simply put, some consumers will drive spending growth more than others. Identifying, understanding and meeting their needs should be fundamental to the growth strategy of consumer-facing businesses.
So which consumers should companies looks to for growth? First and foremost, they should look beyond traditional income-based market segmentations, such as the identification of a “middle class.” The middle class is often seen as the big opportunity for consumer goods companies, but income alone doesn’t necessarily denote an ability, to say nothing of a willingness, to spend. For example, a middle class consumer who insists on saving a large share of his or her income, and who does not have access to the Internet and the modern consumer markets associated with it, is of little use to a consumer-facing company in China.
Our answer to this question is the Connected Spenders, Internet-connected consumers who are willing to spend their spare cash once they have bought basic essentials. Our research shows that Connected Spenders will account for 80% of the aggregate growth in consumption in the next decade. For consumer-facing businesses seeking to grow in China, these are the consumers whose needs will need to be addressed.
So where do companies look for these consumers?
Connected Spenders are concentrated in the cities we prioritize based on our City Strata system, reinforcing our recommendation that companies should consider new investments here first. However, Connected Spenders can be found in every city in China, and their consumption patterns vary systematically across them. Thus, applying the Connected Spenders lens makes for a much more granular and actionable assessment of growth opportunities in China.
Regardless of whether companies ultimately choose to focus their investments in the top strata or build broader market penetration—and regardless of whether they choose an online or offline strategy, or both—understanding the different spending habits of Connected Spenders across China will help ensure that they maximize their investments.
For additional insights, download The Demand Institute’s No More Tiers report.