McKinsey Director: 75% Of New Wealthy Households Will Be Outside Top Tier Cities

Vinay Dixit Interview By Joel Backaler (The China Observer) Includes Insights On Consumer Demographics, Spending Power, Emerging Trends

Wealth creation will increasingly shift to China's second- and third-tier cities, powered by domestic and foreign investment, in coming years

Wealth creation will increasingly shift to China's second- and third-tier cities, powered by domestic and foreign investment, in coming years

In January, Jing Daily wrote about the comparatively young age of China’s luxury consumers. According to a Chinese article we translated for that story, the key demographic of Chinese luxury consumers are around 15-20 years younger than their counterparts in the US and Japan, with the average Chinese luxury buyer around 40 years of age.

This week, many of the findings reported in both the Western and Chinese press about Chinese luxury consumer behavior and trends are validated in an interesting interview of Vinay Dixit, Senior Director of Asia Consumer Centers in McKinsey & Company, by Joel Backaler of The China Observer.

From the interview:

Joel Backaler: The 2009 McKinsey Consumer survey emphasized that companies should no longer assume the existence of a homogenous “China market” and monolithic block of 1.3 billion consumers, adopting a one-size-fits-all China strategy. The survey introduces the “cluster map” approach to China market strategy. How will this alter the business models of foreign luxury companies trying to gain a foothold in China beyond tier-1 cities?

Vinay Dixit: The last decade has seen remarkable changes in China – those relating to consumer evolution, infrastructure development, income levels and consumption patterns, to name a few. Our research (based on 30,000 consumers studied across ~60 cities since 2005) clearly shows that a “city-cluster” framework is fast replacing the “city-tier” approach when it comes to targeting the Chinese consumers. Several key attitudes are now becoming more and more consistent in a geography of 250-300 km radius around key cities, irrespective of the tier in which these cities are.

This has significant implications in both “where to play” and “how to play” decisions of the companies. It provides significant clues towards choice of geographic areas that companies could prioritize in their launch and expansion plans on one hand, as well as on how to customize their go-to-market strategies in these chosen geographies on the other. Ultimately, we believe that this framework can significantly support a prioritized, sustainable and profitable expansion of a company’s business in China.

With respect to luxury consumers, we see significant differences in their profile and attitudes across various cities and regions in China. We introduced the concept of 7 wealthy consumer segments in our last years study – even within the tier-1 markets of Beijing and Shanghai, we see significant differences in composition of the wealthy consumers. The differences in other tiers and geographies are even starker.

Read the full interview here at Seeking Alpha.

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