Status symbols

The business world has woken up to the size and power of China's fast growing middle class. And, this time, it is sober-minded. Fantasies of 1.3bn individuals releasing decades of pent-up consumer urges have finally been abandoned. Distribution death traps, ineffective sales teams, widespread corruption and seemingly indecipherable regional preferences – not to mention more than 900m rural dwellers living on less than US$3 a day – have shattered the illusion of gold lurking in the topsoil of China's hills.

However, the Chinese – particularly Beijing, Shanghai and Guangzhou, as well as secondary cities such as Chengdu, Hangzhou, Dalian, Qingdao, Xiamen and Chongqing – are getting richer. There are least 100m people with enough disposable income to indulge in a broad range of nonessential goods, from a can of Pepsi to meticulously appointed living room. And this 'middle class' is unlike any other in history terms of scale, growth rates and ambition.

For instance, starting from scratch five years ago, China is now the largest mobile phone market in the world, with 170m handsets in use. Nokia, Motorola and Siemens all have major research and development centres in China. And, according to the Diamond Trading Co (formerly DeBeers), engagement ring penetration is approaching 60 percent key markets, up from less than 10 percent 1994. Shanghainese are more entranced by the sparkle factor than even the Japanese.

However, incomes are sorely limited. Even in gleaming coastal cities, individuals who can afford 'international standard' lifestyles are far outnumbered by those who can't. Most members of the new middle class make less than US$7,500 a year before tax. And, despite limited means, Chinese save more than 30 percent of their income.

Beyond purchasing power, the psychology of the new middle class is a minefield of contradictions and emotional booby traps. China's millennia-old dynastic and Confucian culture has resulted in a mindset that paradoxically blends an aggressive hunger for social/financial advancement and a rigid, hierarchical social structure that rewards conservatism. As a result, the Chinese psyche has always been torn between the polar extremes of ambition and caution. (By contrast, Japanese are unadulterated safety seekers while Westerners, fuelled by individualism rooted in monotheistic religiosity, pretty much 'go for it'.) Denizens of the Middle Kingdom are conflicted by a desire to both project individual status and protect family welfare. They are motivated by both a dynamic and impulsive 'now' orientation versus a stable and balanced future focus.

The ambivalence between conspicuous consumption and conformist conservation has, historically, divided the hearts of Chinese. An explosion of lifestyle and economic opportunities, combined with the other reality of low incomes, rusted iron rice bowls and expensive housing, exacerbates this tension. Smart marketers must help consumers resolve it. How can this be done?

Most fundamentally, those hoping to sell their products in China should maintain an acceptable, category-specific price premium. high price really does signal international quality. But watch out. A stick of Hall's candy should not cost more than Yn2. A Ford Changan car priced above Yn130,000 will be relegated to niche territory.

Expensive, non-publicly displayed products have an uphill battle – avoid them. The new middle class will choose the practical Little Swan dishwasher for the home but, at the same time, spend lots of money on a more conspicuous product such as a Buick sedan. Intimate Victoria's Secret lingerie is a tough sell, while an on-display Rolex is not.

Status items should have practical end benefits. The top-flight Siemens phone should be used to close the deal. Dragonair's business class must be a cushy corridor of effective networking.

Products meant to project success should do so, but never ostentatiously. In a culture burdened with inflexible social standards, being the obvious centre of attention is taboo. Your colleague can admire your new Sony laptop. You can know he admires it. But he can't know you know he admires it.

Achievable goals
Aspiration must be accessible. Recognise the difference between an achievable goal and a delusional fantasy. The self-employed taxi driver wants to take his family to Pizza Hut once a week, but he'll never afford a weekend at the Jinmao Grand Hyatt. A young professional longs for a holiday in France, but a luxury cruise around the world is an impossible dream.

Present children as a cherished investment. Children have always been the ticket to upward mobility. An IBM computer, for example, is not for video games; it's an educational power tool (PC ownership exceeds 25 percent in key cities, despite a PC costing the equivalent of three months' average wages). Multinational-brand infant milk powder is one of the least price-sensitive segments in China and boasts, in percentage terms, the highest price premium.

A mushrooming, educated and savvy Chinese middle class is finally a reality. But, to tap the potential of its purchasing power, the profile and market positioning of your brand must first be carefully determined.

This article was written by Tom Doctoroff, Northeast Asia Director and CEO, Greater China, of J Walter Thompson/Bridge Advertising: tom.doctoroff@jwt.com.