The true behavior of the Chinese shopper

How predictable purchasing patterns can help companies grow their brands.
By Bruno Lannes and Kevin Chong

Bruno Lannes is a partner in Bain & Companys Shanghai ofce and leads the firms Consumer Products and Retail practices for Greater China. Kevin Chong is a partner in Bains Shanghai ofce and a member of the rms Consumer Products and Retail practices. The authors extend gratitude to all who contributed to this briefin particular Fiona Liu, Chen Chen and Iris Zhou from Bain & Company and Vincent Shao and Lydia Wang from Kantar Worldpanel.

Copyright 2013 Bain & Company, Inc. All rights reserved.

The true behavior of the Chinese shopper

In 2012, Bain & Company presented its groundbreaking research on the behavior of Chinese shoppers, taking an unconventional approach to learn what they actually bought, as opposed to what they said they bought. This year, we present a second look: Partnering again with Kantar Worldpanel, we studied the shopping habits of 40,000 Chinese households. We analyzed categories spanning personal and home care products, beverages and packaged foodsthe four largest consumer goods groups, which account for more than 80% of Chinas consumer goods market. Our analysis conrms and renes our 2012 ndings and provides additional invaluable insights into how shoppers make purchases. These insights will be critical to marketers as they seek to grow their brands in a Chinese market characterized by an economic slowdown and increasing competition. The days of growing a brand just by riding a category wave are coming to an end, especially in top-tier cities. As in more mature markets, brand growth in China will need to come from market share gains. (See our full report, Growing brands by understanding what Chinese shoppers really do.)

Key ndings
Our research results conrm what we learned last year: Repertoire behavior prevails in China. Shoppers engaging in repertoire behavior choose multiple brands within a category for the same occasion or need, and the more they shop, the more they tend to buy multiple brands. Strong repertoire categories include skin care, biscuits and candy. In some product categories, however, shoppers are more loyal, repeatedly buying one brand for a specic need or occasion. Strong loyalist categories include infant formula, baby diapers and milk (see Figure 1). Across all analyzed categories, we found very similar behaviors in terms of the number of brands purchased and the frequency of purchase from year to year. In both years, shoppers tended to purchase more brands when they purchased more frequentlythat is, they tended to exhibit repertoire behavior. Understanding where a category falls along the continuum from repertoire to loyalist should be at the center of any brand strategy.

Figure 1:

Chinese shoppers exhibit repertoire behavior in many categories

Average number of brands purchased per household (2012) 7 Biscuits 6 Skin care Candy 4 Personal wash Chocolate Toothbrush 2 Hair conditioner Shampoo Chewing gum Facial tissue Toilet tissue CSD RTD tea Bottled water Beer Toothpaste Fabric detergent Juice Instant noodles Infant formula

Yogurt Milk

Kitchen cleaner Color cosmetics

Baby diapers

Fabric softener

0 0 5

10

15

Category purchasing frequency (average number of purchase occasions per household)

Sources: Kantar Worldpanel; Bain analysis

The true behavior of the Chinese shopper

Figure 2:

Leading brands always have much higher penetration rates than their category averages

Penetration rate: Leading brand vs. average . for top 20 brands in each category (2012) 100% 80 77 60 40 20 10 0 12 15 17 10 11 12 17 10 9 7 8 8

74 66 63 52 52 50 50 49 46 46 44

42

38 16

38

34 10

32 10

31 23 22 7
Toilet tissue Vinda Beer Tsingtao Infant formula

22 8

7
Toothpaste Darlie

10

20 8
Skin care Olay

15 6

15 1
Fabric softener Comfort

10 4

6 1

Milk Mengniu Instant noodles

Personal wash Safeguard

CSD Sprite

Fabric detergent Liby Biscuits Oreo

Bottled water Nongfu

Kitchen cleaner Liby

Candy Xufuji

RTD tea JDB

Color cosmetics Maybelline

Yogurt

Juice

MasterKong

Mengniu Minute Maid

Facial tissue Xinxiangyin

Chewing gum Extra

Baby diapers Pampers

Chocolate Dove

Shampoo Head & Shoulders

Toothbrush

Hair conditioner Pantene

Mead Johnson Colgate

Average penetration rate for leading brand

Average penetration rate for top 20 brands

Note: Penetration is the number of households who bought this brand (or this category) at least once in 2012 divided by total number of households Sources: Kantar Worldpanel; Bain analysis

Although brands are important to Chinese shoppers, they dont think about one brand very often. Our study reveals that the average purchase frequency of any particular brand is very lowless than ve times a year. Even at the category level, the average purchase frequency rarely exceeds once a month. This low level of engagement with brands should be sobering news for marketers who believe that the key to success is devoting tremendous effort and resources to getting shoppers to love their brands. Penetration is paramount to driving market share Our ndings also afrm that penetration is the most important driver of market share across all key categories. Reinforcing that point, we found the leading brand in a category had a penetration rate 3 to 10 times higher than the average penetration rate of the categorys top 20 brands (see Figure 2). Focusing on 10 selected categories, we verified that most shoppers have very low purchase frequency. Approximately 60% to 80% of shoppers purchase a certain brand no more than twice a year, and as a group, they drive 20% to 55% of a brands revenue. The Liby brand in the detergent category is a good example
2

(see Figure 3). Given this, penetration is the key to

growth for any brand. Our research demonstrates that a categorys leading brand invariably has the highest purchase frequency and repurchase rate. This nding suggests that niche brands dont exist; the brands that have a small shopper base are simply small brands, whose buyers usually buy less frequently and churn more often. Given that Chinese shoppers are inclined to buy multiple brands, it isnt possible to create big brands by targeting and selling to only a few shoppers in the hope that they will become heavy or loyal buyers. Chinese shoppers simply dont behave this way. Instead, to build a big brand, companies need to sell to as many shoppers as possible. A brands shopper base is a leaky bucket Marketers who believe their shopper base and revenue are stable should stop and take note. Our study shows that, on average, the top ve brands in a category lose 30% to 60% of their shopper base every year, and the percentages are even higher for small brands. Even if shopper base and

The true behavior of the Chinese shopper

revenue show little variation from year to year, this apparent stability often conceals the fact that a signicant number of shoppers are lost and recruited each year (see Figure 4). Because a brands shopper base is a leaky bucket, a brand seeking to grow must not only attract new shoppers but also replace lost shoppers with new ones each year. Given that most shoppers have very low engagement with brands in terms of purchase frequency and repurchase rate, companies need to nd ways to recruit customers again and againessentially, each time they go shopping. Rules of the road: How consumer products companies can drive penetration The implications of our research are far-reaching, providing insights that can help marketers shape strategic decisions. The route to success begins with understanding where a brand category falls on the repertoire-loyalist continuum. Armed with this understanding, marketers can choose the right approach to building penetration.

In repertoire categories Build consideration rst. Repertoire category shoppers consider multiple brands when they shop, so a company must ensure that its brand is one that shoppers will consider. Some strategies for becoming part of the repertoire include investing in the right above-the-line mass marketing (like TV commercials), focusing on distinctive brand assets and associating the brand with specic needs and occasions. For example, Head & Shoulders has consistently and heavily invested in above-the-line marketing to promote the concept of dandruff control, building strong consideration as a result. Achieve perfect in-store execution so that consideration translates into penetration. Because Chinese shoppers buy so infrequently, wide distribution across channels is important. Brands need high levels of below-the-line marketing (like in-store sales promotions) and trade spending to ensure shoppers are constantly engaging them at the point of sale. To achieve superior visibility and distinctiveness in the store, marketers should present their brands in multiple locations beyond the main shelf, targeting

Figure 3:

Low-frequency buyers contribute to a signicant amount of revenues

Percentage of Liby shopper base by purchase frequency in 2012 (total number of shoppers = 100%)

100% 8 80 60 40 20 0 39 62% 23 13

100

2 31%

10

11

12+

total

Purchase frequency (purchase occasions per year) Revenue contribution by purchase frequency 14 17 14 11 9 7 6 5 3 3 2 100

Sources: Kantar Worldpanel; Bain analysis

The true behavior of the Chinese shopper

Figure 4:

On average, the top ve brands in a category lose 30% to 60% of their shopper base every year

Average number of shoppers who left a category's top five brands in 2012 (as percentage of shopper base in 2011) 100%

80 63 60

59 52 48 45 45 45 44 35 29

40

20

Chocolate Skin care

Shampoo Kitchen cleaner

CSD Beer
Shopper base

Juice Biscuits

Fabric detergent Milk

Revenue base

Sources: Kantar Worldpanel; Bain analysis

store hot spots, in particular shelf ends and checkout counters. Use product and packaging innovations to create new consumption occasions and reach new consumer groups. Promotions, seasonal packs and ubiquity on the shelf are some of the top ways a company can nd fresh appeal with consumers. Mondelzs Oreo brand, for one, has done just thatoffering multiple formats of its biscuit (sandwich, wafer and mini, to name a few) in various package sizes. In loyalist categories Build preference, beyond consideration. Marketers should strive to make theirs the preferred brand for shoppers and create high switching costs. Above-the-line marketing can help in this effort, as well as shopper recruitment programs, such as offering free trials for a period of time. Be visible and strong on the main shelf. For loyalist brands, its not necessary to continually activate new shoppers or be present outside the main shelf. Loyalist shoppers are likely to nd the brands they prefer. Pampers, the leading brand of baby diapers, always ensures it has large shelf
4

space and very good visibility for its products in stores. Use innovations to get shoppers to trade up to premium offerings. By staying ahead of the competition with product innovations, companies can build on shoppers loyalty to encourage purchases of more expensive products. Dairy giant Bright, for example, successfully launched its premiumpriced yogurt (Momchilovtsi) based on imported lactobacillus to capture consumers desire for high-quality products. China is a complex marketall the more so as growth slows and competition intensies. To win in this market, its critical for companies to truly understand Chinese shoppers. More tactically, this requires increasing penetration and recruiting shoppers every time they step into a store or, at the very least, replacing the consumers whom the brands inevitably lose through churn. With a solid understanding of a categorys position on the repertoire-loyalist continuum, marketers can take more of the right steps to attract new shoppers to their brands. For executives seeking the route to success in China, our 2013 research ndings will provide valuable insights to developing strategies that will help brands grow and outpace the competition.

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We looked at 26 categories, including beverages (milk, yogurt, juice, beer, ready-to-drink [RTD] tea, carbonated soft drink [CSD], bottled water), packaged foods (biscuits, chocolate, instant noodles, candy, chewing gum, infant formula), personal care products (skin care, shampoo, personal wash, toothpaste, color cosmetics, hair conditioner, toothbrush, baby diapers) and home care products (toilet tissue, fabric detergent, facial tissue, kitchen cleaner, fabric softener).

2 Penetration, expressed as a percentage, is the number of households that bought a brand or category item at least once during the year, divided by the total number of households in the study. 3 A niche brand has a small shopper base that displays exceptionally high loyalty or buying frequency.

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