Chinese consumers are looking for a taste of the good life, and not just those who are wealthy. Sales of premium tier products, defined by the leading global measurement company, Nielsen, as goods that cost at least 20% more than the average price for the category, are growing at a rapid pace.
According to recent Nielsen Retail Sales data, which captures sales and price data from major retail chains, factors on both the supply and demand sides are driving the growth of the premium segment in China. First, many consumers have greater buying power than ever before. Consumer purchasing power is growing at from 7% to 9% per year in China. Additionally, the availability of new, innovative brands is also fueling growth in the premium segment.
“With increasing affluence, consumers are craving products that offer an enhanced, premium experience,” said Vishal Bali, managing director of Nielsen China. “Beyond basic-needs and benefits, Chinese consumers are making purchase decisions based on how products make them feel. By tapping directly into a desire for a more specialized or exclusive experience, successful brands are innovating to deliver on consumers’ heightened expectations for high-quality products with premium benefits.”
In China, the availability of new, innovative brands, as well as brands of high quality and safety standards are fueling growth in the premium segment, with new, quality offerings bringing excitement and trust to the industry. Recently, the premium segment has been a bright spot in a very challenging retail environment, with brands consciously innovating to capitalize on the trend.
A Nielsen study shows that 65% of online respondents in China will try a new and innovative premium product based on the recommendations of friends and family. Additionally, 60% of respondents say they are very willing to pay for premium products that have high quality and safety standards.
The study also found that Chinese consumers define premium by more than just price alone. Fifty percent of global respondents say buying premium products makes them feel confident, with the percentage even higher in China (62%). Environmental factors are especially persuasive in Chinese respondents. In fact, for products made with organic and all-natural ingredients or environmentally friendly or sustainable materials, more than half of respondents in China say they’re willing to pay a premium.
Among all product categories, consumers are most willing to pay a premium for electronics according to Nielsen’s study. Globally 42% of consumers say they are willing to pay a premium price for electronics, and in China that number is even higher at 48%. Considering the dramatic change that modern technology has brought to consumers’ everyday lives, it should come as no surprise that people are willing to pay more for this now essential category.
Apart from electronics, clothing and cosmetics also have strong upgrade potential. In China, 38% of respondents say they are willing to pay for a premium offering in these two categories. Globally however, 39% expressed their willingness to buy premium clothing, and only 33% say they would buy a premium offering in cosmetics. This suggests that cosmetics are an especially relevant trend in China, with significant opportunity left in the category for innovation and new offerings.
In addition, diary products (37%), cars (32%), oral care (31%) and meat and seafood (30%) are also key categories where a high percentage of Chinese consumers say they are willing to pay a premium.
It is also worth noting that Chinese consumers say that they have increased spending on a number of high-quality of life categories over the past five years. Sixty percent say they spent more on groceries, while clothing (56%), entertainment/leisure activities (52%), travel (52%) and dining out (50%) were also popular categories. With respondents reporting additional spending more in these key categories, the suggestion is that consumers will continue to increase their focus on quality of life and premium purchases.
Consumers buy premium products for both practical and emotional reasons, however the latter resonates more strongly in China than in many other countries. Beyond a product’s functional benefits, respondents are also buying premium products for the positive feelings or image that come with such purchases.
Fifty-two percent of global respondents agree that buying premium products makes them feel good, and the agreement in China (66%) is among the highest, behind only India (78%). A similar percentage of global respondents (50%) say buying premium products makes them feel confident. Once again, agreement in China (62%) is only behind that in India (76%) among all countries.
Status is also a more important purchase consideration in China when compared globally. Roughly half of respondents in China (54%) say they buy premium products because these items show other people that they have good taste. But premium products don’t just communicate sophistication; they’re also an important indicator of accomplishment. Most Chinese respondents say that they buy premium products because these products make them feel successful (56%) or show other people they’re successful (also 56%), with these percentages significantly higher than those in other developed markets.
“Today, emotional motivation is a key factor for Chinese consumers, and we see premium products driving this trend. Consumers want unique experiences that they can share with their friends, they want products that express their individual taste while also projecting a positive image of success and status. Brands that pay close attention to China’s increasingly sophisticated consumers have an enormous opportunity for growth in front of them,” concluded Bali.