Direct and Mobile Approaches Capture the Chinese Consumer

Related entries: Consumer Market, Corporate News, General, Strategy

Everyone is talking and writing about Chinese consumers, as the numbers and spending power are increasingly understandable – and accessible. This post looks at the mobile phone and direct sales sectors, in which companies have leveraged their brands while successfully adapting business structures and products to the emerging consumer, outside the traditional, select urban centres such as Beijing, Shanghai and Guangzhou. A further post will look at new research into the consumer market in general.

The Direct Approach
Companies such as Avon (set up in China 1990), Amway (set up in China in 1995), and others initially made good progress with the mass market in China. However, the direct-selling sector has had a tough time, since activities were banned in April 1998 amid concerns of pyramid schemes, fraud and consumer anger.

The direct selling companies were forced to restructure their operations for the China market, and to operate more like traditional retail businesses. Despite the restrictions, the market leaders did well. By 2003 Avon had sales of RMB2.4 billion, while Amway’s sales in China passed those of the US and Japan in the same year, and the company had 120 outlets in every province except Tibet by 2004.

Now the direct sales business is back, and in February this year Avon was the first company to get official approval to carry out direct sales since new regulations were announced in December 2005. The company has announced that it now has 5,700 outlets serving 114,000 licensed sales promoters, with another 31,000 applicants in the wings (according to a report from MartketWatch). With stats like that it is not surprising that Avon predicts China will soon overtake Japan as its largest market in Asia.

The development of the direct sales business has been especially interesting for a number of reasons. It was based on an imported model, it benefited from the cultural importance of relationships and recommendations, and managed to bring consumer products to the mass market. It also suffered from its own, high-profile success when the regulators intervened to stop it in its tracks. Unfortunately for the multi-billion dollar US businesses, all direct sellers, good and bad, were classified as risks, even though some were legitimate businesses.

All the highs and lows, risks and rewards of China business, neatly packaged for really simple syndication…

Getting Mobile
Nothing grabs headlines like big numbers in China, and the mobile phone market provides plenty of them. There are already over 400 million subscribers, with another 100 million handsets sold a year.

Nokia is the market leader (at about one third of the market, and with 48,000 stores), while Motorola follows (over one fifth, and with around 30,000 outlets). The two now account for over half the market, and have been taking market share from local players like Ningbo Bird and TCL.

Both Nokia and Motorola are now launching flagship stores in China. Motorola has already opened in Shanghai, while Nokia’s will follow next year. But they are not just focusing the wealthy Shanghai market. They are also continuing to aggressively expand their retail networks and to introduce new, low-cost models for the emerging consumers in less-developed areas (see here for Nokias’a latest).

It is interesting to note how both companies have used strong branding and distribution to achieve market leadership. The battle is now on for the new Chinese consumer in the cities that many international executives have not yet heard of, let alone visited.

Direct selling of mobile phones cannot be far off!

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