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Understanding China’s Middle Class
Targeting key segments of China’s diverse and rapidly emerging middle class will be crucial as household incomes rise Allison Cui and Kheehong Song
one are the days when companies looked at China as a monolithic land of 1 billion potential customers. Companies are now focusing on how to capture small segments of China’s giant market, and none of these segments is as attractive or as full of potential as the country’s rapidly growing—and multifaceted—middle class. As China’s economy continues to grow, more people will migrate to China’s booming metropolises to find better-paying jobs. These working consumers, once among the country’s poorest, will steadily climb the income ladder and 38 January–February 2009 chinabusinessreview.com
join the new middle class. Companies that can effectively understand the composition and needs of this diverse group will be positioned to reap massive rewards.
Why the middle class?
Though many foreign companies have remarked on the importance of China’s middle class as a consumer segment, few realize just how dramatic its ascendance is. From 1995 to 2005, the population of China’s middle class—defined here as households with annual incomes ranging from
$6,000 to $25,000—grew from close to zero in 1995 to an inexpensive racket in a sports stadium or shop near school. estimated 87 million in 2005, according to MasterCard Professionals and businesspeople, however, usually play Worldwide, Asia Pacific. China’s middle class will jump to badminton in indoor badminton clubs, gyms, or stadiums. 340 million by 2016 (see Figure 1). The purchasing One of the major reasons they play badminton is to make power—disposable income minus savings—of China’s midfriends or develop business relationships. They are aware of dle class is also growing. In 2006, around 39 percent of racket brands and wear professional sportswear to display urban households were middle class (see Figure 2). By 2016, social status. that percentage will likely rise to 60 percent. At present, the The differences between school kids and professionals are middle class accounts for 27 percent of China’s total urban mainly due to their disparate life stages and buying power. If disposable income. By 2015, that percentage is expected to a sports equipment and apparel company understands the rise to more than 40 percent (see Figure 3). Considering its differences between these two segments, it will use varying swelling numbers, purchasing power, and products and prices to target them through trajectory, China’s middle class presents different channels. Nonetheless, even withQuick Glance marketing opportunities that companies in the professional segments, consumers ■ China’s middle class, defined cannot afford to miss. exhibit distinct buying behavior based on here as those earning $6,000 to their occupation and level of career devel$25,000, will increase from 87 What does it opment. For example, engineers usually million in 2005 to 340 million in 2016. mean to be middle class? exhibit different buying behavior from Different types of companies have differ■ Several non-income-related marketing professionals, and senior manhooks, such as age, the stage in a ent concepts of exactly what it means to be agers may not care as much about brands consumer’s career, and location of middle class in China. For example, HSBC as junior managers, who tend to buy purchase, influence purchase Holdings plc and Deutsche Bank AG have famous brands to show their emerging decisions for China’s middle class used income to differentiate the middle social status. consumers. class from the affluent and laboring classes ■ Monitor identified six subPurchasing power in China. From an investment bank’s persegments within China’s middle and how the middle class buys spective, using income level as the defining class, each with its own unique Of all the challenges that the middle...
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