Unleash the Power of Relationships through Customer Culture

Unleash the Power of Relationships Through Customer Culture

When we consider how Customer Relationship Management has produced underwhelming returns on investment in the luxury and retail industries, we are reminded of the story of a man looking for his house key. He is on his knees searching under a street lamp when a friend approaches and asks if he is sure that is where he misplaced the key. The man says no, he lost it over in the dark alley, but he’s looking under the street lamp because the light is so much better there.

Luxury and retail executives are fumbling in the dark too, looking to solve dismal customer and associate retention rates with CRM technology and analytics. While companies have invested millions of dollars in CRM systems and outsourcing, the investments are producing meager results.

One of the most disappointing aspects of Operational CRM is the hype and promise to deliver immediate outcomes. The techno-analytical solution is supposed to provide the answer to customer and associate retention, but it does not fix the problem. Executives and consultants have lost sight of two simple facts: First, that customer relationship building involves humans, the species otherwise known as homo sapiens; second, that homo sapiens operate in tribes, and that all of these tribes are organized under the concept known as culture.

There are many different definitions of the word culture. Most experts agree that in a corporation, culture usually means the collective way in which the team carries out the enterprise mission. This involves a written or implied set of values, accompanying beliefs, language and behaviors that are, in general, common to all associates.

Building a sustainable Customer Culture takes courage, commitment and hard work. It is solely through Customer Culture that we establish and sustain the inspirational humanistic environment that builds mutually beneficial customer relationships. The unfortunate alternative to building a rich Customer Culture is the current luxury and retail business model where nameless sales people sell luxury products and services to anonymous customers, all in the course of a one-time soulless transaction.

Here are seven simple, effective steps that the Luxury Institute is using successfully to build Customer Cultures that will dramatically increase the customer and associate acquisition, retention and referral rates of your enterprise:

Step 1: Select Customer-Centric People who Build Relationships

Luxury Institute surveys show that, at most, 15% of a brand’s customers report having a relationship with a sales associate. The average brand is in single digits. Recently, one well-known luxury CEO confided that the recycling of ineffective salespeople is one of the major reasons why customer retention in luxury is so low. The incestuous approach to selecting transactional salespeople means that while these individuals have experience in the luxury industry, they often lack the personal values to be effective relationship builders.

Selecting the right people requires a thorough interview process that focuses mostly on personal values. Business skills are secondary. Brands that create rich Customer Cultures select people who demonstrate the ability to embrace cooperation and teamwork, while also going above and beyond for associates and clients. In order to identify the best people, some top-rated brands use personality testing while others conduct extensive value based interviews. Regardless of the method, when you select people with great values, the probability that you will hire effective relationship-builders increases exponentially. High associate and customer retention rates will follow.

Step 2: Build a Customer Culture Based on Values

All individuals have a set of personal values, whether they have them written on a piece of paper or embedded in their brains. These values drive small and large daily decisions and behaviors, especially during challenging moments. Organizations must also have clear, relevant service values that guide associate decisions and behaviors when interacting with peers, customers and all other constituents.

In his book, Obliquity, John Kay makes a strong case for pursuing critical goals indirectly. Kay demonstrates how companies that seek to maximize profits often fail while companies that seek to serve their constituents often achieve the greatest profitability. The Luxury Institute has observed, through working directly with numerous brands, that while increasing sales and profits are worthy goals, they are best pursued through a focus on encouraging and measuring the positive behaviors of associates who live the service values daily.

When guided by their unique service values, luxury and retail brands act in ways that serve the best interests of associates and customers. This behavior dramatically increases the retention rates of both, thus increasing long-term profits. Profits are achieved as a by-product of a great Customer Culture, not as an objective unto itself.

Step 3: Design Service Standards that Empower Your People to Live the Values

Joseph Pine and James Gilmore, authors of the classic book The Experience Economy: Work Is Theater & Every Business a Stage, stated that future economic growth lay in the value of experiences and transformations and that selling goods and services was no longer enough. Many brand executives read the book, put it back on the shelf, and took no action. Today, consumers demand extraordinary experiences. When they fail to get them, they’re turning to Twitter, Facebook and ratings sites to share their stories.

The service values of a brand must translate into purposefully designed service standards. Service standards are the choreographed behaviors and dialogues that consistently deliver extraordinary experiences for associates and customers. The truly customer-centric brands create unique service standards for key elements of the customer experience across all channels and scale them globally. These elements include a major redesign toward customer-centricity of the following experiences: in-store, call-center, website, after sales, and the often overlooked clienteling and relationship building. Brands that create and measure service standards outperform and dramatically outbehave their competition.

Step 4: Educate Based on Deliberate Practice that Delivers High Performance

Corporate sales training programs today are obsolete and ineffective. Even the term “training” evokes what we do to animals rather than how we should be teaching human beings. Rote training does not work well for inspiring human beings to excel in roles that require finesse, diplomacy and relationship building.

In his recent book, Talent is Overrated, author Geoff Colvin takes his readers on a journey of what it really takes to achieve high-performance in any field. His book is based on studies by the world-renowned researcher, Dr. K. Anders Ericsson, who has conducted empirical research over three decades on what truly drives high performance in various domains including sports, medicine, music, creativity, and business.

High-performers engage in a highly individualized method of performance education that Ericsson calls “deliberate practice.” For the Luxury Institute, this means identifying the most critical human elements that make the customer experience unique within each brand. It also means dramatically increasing the ability of every sales professional to consistently create extraordinary experiences through education and practice, eventually leading to mastery.

Most sales associates lack a certain set of skills as they face the initiation and development of the client experience process. Some sales professionals are not good listeners or hesitate to ask clients for their personal information. Others are afraid to approach a client who is browsing or are reluctant to call a client after the first sale. Each sales professional must consistently work on the various aspects of relationship building in order to become an expert.

Three types of feedback are required in this process. The first type is feedback from the manager/coach who can evaluate the sales professional’s effectiveness as they practice or interact with customers. The second is continuous access to objective feedback from benchmark CRM metrics such as customer acquisition, data capture, retention, and customer experience surveys. The third type of feedback requires learning over time to step outside yourself and honestly, often painfully, assess your own performance. Deliberate practice is hard, but it is the only way to educate associates to deliver extraordinary experiences.

Step 5: Measure the Critical Elements of Customer Culture

In order to build a sustainable Customer Culture, you must create, measure and embrace the feedback of customer metrics. The Luxury Institute has observed that the most important transformation a brand can make is to embrace customer-centric metrics for sales teams and individuals. When brands establish individual and team customer-centric objectives and measure acquisition, data capture, retention, recovery and referral rates, the entire organization begins to shift into relationship building mode. When brands measure whether stores and sales professionals are living the service values and service standards daily, positive feedback loops are created. These drive sales and profits, not as objectives, but as the rich outcomes of highly educated and empowered human behavior.

Step 6: Align Compensation and Celebration with Values

Few human resources executives understand the science of aligning reward systems with the human requirements of the 21st century. In his book Drive Daniel Pink discusses what truly motivates humans. Pink demonstrates that carrot and stick rewards can work for simple human tasks where the work is repetitive and routine. However, for complex work such as building customer relationships, the commission-based, pay-for-performance methods that are popular today can actually decrease performance. Pink persuasively argues that in the 21st century, human beings who conduct complex work that requires creative engagement are motivated by three things: having a meaningful purpose, being empowered to have a degree of control, and having the support to achieve mastery. Most brands today have toxic compensation practices that must be modernized for today’s customer-centric world.

Brands also overlook the concept of employee celebration as a powerful and low-cost motivator. Many executives look upon recognition as an awkward event in an environment that is supposed to be serious and focused on business. Brands that embrace Customer Culture identify the benefits of celebrating personal and professional milestones and achievements as a way to create unique experiences for their associates. Customer-Centric brands also continuously find creative ways to recognize team achievements to encourage cooperative behavior. A fun, celebratory environment allows associates to reduce stress and focus on the high performance effort required in building extraordinary associate and customer relationships.

Step 7: Develop Daily Rituals that Invigorate People

Rituals are the ways that human beings recommit to values and to each other. The primary ritual of the Ritz-Carlton is the “Daily Lineup,” where employees at all hotel

locations, on all shifts, and even at headquarters, gather for fifteen minutes. During this time, one of the service values is reviewed and associates brainstorm how it can be applied today. Critical measures are discussed with an emphasis on improvement and a “WOW” story of an associate who has delivered an extraordinary experience is shared. The enthusiastic presence of dedicated leaders at every daily line-up demonstrates to associates the importance of the Ritz-Carlton Customer Culture.

To skeptics, daily rituals are a bit more like a cult than a culture. However, just like in sports and in schools, healthy rituals bind people with meaning and reinvigorate the commitment to values. We have witnessed daily rituals in several organizations that are magical and inspirational because the senior leadership truly believes in a Customer Culture. We have also seen executives destroy company practices with their lack of belief and even ridicule what their colleagues have deemed inspiring rituals. Just as close-knit families have enduring traditions, brands such as Zappos and Ritz-Carlton use rituals to reinforce Customer Culture in fun, engaging and effective ways.

The key reasons that luxury and retail brands are embracing Customer Culture is that it measurably improves revenues and profits while creating an invigorating humanistic environment for all of the brand’s constituents. Luxury and retail brands are beginning to recognize that the mantra of the 21st century is to be powerful and kind: to deliver the highest level of domain performance while creating a cooperative environment that builds enriching long-term customer and associate relationships.

Where is the proof? Luxury Institute clients who have deployed Customer Culture initiatives have increased customer data capture from 40% to 80%, increased customer retention rates from 20% to 35% and more than doubled customer experience ratings of sales associates, in one year. This translates into millions in increased sales and profits. Brands also see increased profitability from selling at full price based on custom offers and long term relationships vs. transaction-driven discounting.

Do it for your brand, do it for your associates, do it for your customers, do it for society, but most of all, do it for yourself. Building a true Customer Culture in your organization will dramatically enhance your own life experience. It will transform you from being just another business executive into a happy and thriving human being who enjoys a meaningful life with a far greater purpose than the pursuit of money. Ironically, the sales and profits will follow.

An 18-Minute Plan for Managing Your Day

Yesterday started with the best of intentions. I walked into my office in the morning with a vague sense of what I wanted to accomplish. Then I sat down, turned on my computer, and checked my email. Two hours later, after fighting several fires, solving other people’s problems, and dealing with whatever happened to be thrown at me through my computer and phone, I could hardly remember what I had set out to accomplish when I first turned on my computer. I’d been ambushed. And I know better.

When I teach time management, I always start with the same question: How many of you have too much time and not enough to do in it? In ten years, no one has ever raised a hand.

That means we start every day knowing we’re not going to get it all done. So how we spend our time is a key strategic decision. That’s why it’s a good idea to create a to do list and an ignore list. The hardest attention to focus is our own.

But even with those lists, the challenge, as always, is execution. How can you stick to a plan when so many things threaten to derail it? How can you focus on a few important things when so many things require your attention?

We need a trick.

Jack LaLanne, the fitness guru, knows all about tricks; he’s famous for handcuffing himself and then swimming a mile or more while towing large boats filled with people. But he’s more than just a showman. He invented several exercise machines including the ones with pulleys and weight selectors in health clubs throughout the world. And his show, The Jack LaLanne Show, was the longest running television fitness program, on the air for 34 years.

But none of that is what impresses me. He has one trick that I believe is his real secret power.

Ritual.

At the age of 94, he still spends the first two hours of his day exercising. Ninety minutes lifting weights and 30 minutes swimming or walking. Every morning. He needs to do so to achieve his goals: on his 95th birthday he plans to swim from the coast of California to Santa Catalina Island, a distance of 20 miles. Also, as he is fond of saying, “I cannot afford to die. It will ruin my image.”

So he works, consistently and deliberately, toward his goals. He does the same things day in and day out. He cares about his fitness and he’s built it into his schedule.

Managing our time needs to become a ritual too. Not simply a list or a vague sense of our priorities. That’s not consistent or deliberate. It needs to be an ongoing process we follow no matter what to keep us focused on our priorities throughout the day.

I think we can do it in three steps that take less than 18 minutes over an eight-hour workday.

STEP 1 (5 Minutes) Set Plan for Day. Before turning on your computer, sit down with a blank piece of paper and decide what will make this day highly successful. What can you realistically accomplish that will further your goals and allow you to leave at the end of the day feeling like you’ve been productive and successful? Write those things down.

Now, most importantly, take your calendar and schedule those things into time slots, placing the hardest and most important items at the beginning of the day. And by the beginning of the day I mean, if possible, before even checking your email. If your entire list does not fit into your calendar, reprioritize your list. There is tremendous power in deciding when and where you are going to do something.

In their book The Power of Full Engagement, Jim Loehr and Tony Schwartz describe a study in which a group of women agreed to do a breast self-exam during a period of 30 days. 100% of those who said where and when they were going to do it completed the exam. Only 53% of the others did.

In another study, drug addicts in withdrawal (can you find a more stressed-out population?) agreed to write an essay before 5 p.m. on a certain day. 80% of those who said when and where they would write the essay completed it. None of the others did.

If you want to get something done, decide when and where you’re going to do it. Otherwise, take it off your list.

STEP 2 (1 minute every hour) Refocus. Set your watch, phone, or computer to ring every hour. When it rings, take a deep breath, look at your list and ask yourself if you spent your last hour productively. Then look at your calendar and deliberately recommit to how you are going to use the next hour. Manage your day hour by hour. Don’t let the hours manage you.

STEP 3 (5 minutes) Review. Shut off your computer and review your day. What worked? Where did you focus? Where did you get distracted? What did you learn that will help you be more productive tomorrow?

The power of rituals is their predictability. You do the same thing in the same way over and over again. And so the outcome of a ritual is predictable too. If you choose your focus deliberately and wisely and consistently remind yourself of that focus, you will stay focused. It’s simple.

This particular ritual may not help you swim the English Channel while towing a cruise ship with your hands tied together. But it may just help you leave the office feeling productive and successful.

And, at the end of the day, isn’t that a higher priority?

4 Keys for Successful Project Leadership

We always talk about project management but rarely discuss project leadership.  There’s a difference.

Leaders play a critical role in setting the conditions for a team to successfully manage a project.  If you focus on the following four key roles you can play on a project as the project leader you’ll dramatically improve the odds of project success.  More important, you’ll create a culture where your team members trust you and know you’re doing everything you can to help them succeed.

In creating the right culture, you’ll boost morale, reduce turnover, improve productivity, and generally have a team that wins more often.  So here goes – here are four things you need to focus on as a leader to create an environment for project success.

Define Success

It’s abundantly clear leaders must be involved in defining a project’s scope. They’re the ones who need to be saying “here is the box we are going to operate in, and here are the metrics I am going to define success on.” If it’s not measurable, you are just wasting your time.

We all know measurements must be specific, but we pay lip service to that notion and we put softer measures in. As a leader, you have to draw that line and say “here’s what I am going to judge success by.” Leaders have to set that direction and set the bar. Failing to do so guarantees project failure because there’s no way to measure success.

Procure Resources

Leaders must be involved in the negotiation for resources. It’s kind of unfair to say to your team “Here is a project and we want you to go improve this process. I know you don’t have resources you need so go find them on your own.” Fail. Procuring those resources is your job as the leader.

It’s your job to give your team everything they need to be successful, and sometimes that means you are going out and arguing for budget. Sometimes you are negotiating with other business units for people on their team or folks who would participate part-time on the project.

Your job is to procure those resources. To do so effectively, you have to listen to your team when they tell you what they need because they are going to be closer to the reality of what’s needed. Your job is simply to go get them everything they need to be successful.

Dress up like a Fire Fighter

Once a project is underway, a leader’s job includes firefighting and change management. Invariably as people are working on a project, they are going to start drawing conclusions about what’s “broken” or they are going to be making recommendations that will be controversial. The leader’s job is to be there and be present to help your team advocate for those changes or recommendations (of course only once you are comfortable with them and the team as explained them to you).

It’s unfair to send your team into the VP of a different business unit where they’re making a recommendation on why that VP’s process is busted or recommending big changes in that VP’s area. Imagine you tell your team “just go make your big difficult recommendations to that VP” but you aren’t personally there to support them. That’s completely unfair because they are going to get blown out of the water or ripped apart when that VP realizes the magnitude of the change your team might be recommending.

When you as a leader fail to fight fires shoulder to shoulder with your team, you put the project at risk and you make your people look bad. You have got to be there to back their play.

Sing their Praises

When the project ends, your job as a leader is to be there when they are successful and make sure people know about it. Ensure key stakeholders in the organization know the people on your team have been successful. Note – I did not say make sure stakeholders know you are successful. Let your work speak for itself but you have to speak for your team. It’s a nuanced difference but it matters.

When you let the rest of the organization know about the success and impact your team has had, you’re building that trust with the members of your team. They know you’ve got their back. They know their hard work is recognized, valued, and rewarded. They know you’ll do everything you can to help them be successful. Honestly, if you’re doing all those things as a leader, there’s not much more they can ask for.

10 Growing Chinese Consumer Trends

As China becomes an increasingly important part of the global economy, no investor or business leader can ignore the increasing influence of its consumers. The tastes and preferences of China’s market of 1.3 billion people have the potential to sway demand and shift the trajectory of global consumer spending.

This is especially true as China’s consumer spending is growing at an average annual rate of 18 percent, according to the National Bureau of Statistics, compared to 2.2 percent gain for the U.S.

As many foreign companies have demonstrated, cracking China’s consumer market is easier said than done—and there have been some notable stumbles. U.S. home-improvement giant Home Depot shut down five of its 10 stores since entering the market in 2006, while Best Buy, the world’s largest consumer electronics retailer, closed all of its branded stores in China this year. Retail giant Wal-Mart Stores was only able to turn a profit in the country in 2008, 12 years after first entering China.

There have also been some notable successes, such as U.S.-based Yum! Brands, which has become the largest Western restaurant brand in China. Yum! currently has a 40 percent share of China’s fast-food chain market, compared with 16 percent for McDonald’s, according research firm Euromonitor.

Some consumer trends in China are well known, such as the increasing demand for luxury goods, but others may surprise you. CNBC.com put together a list of 10 major consumer trends, including the companies and sectors they have the potential to profit from them. The list is based on studies and reports from international organizations such as the United Nations, the U.S. Department of Agriculture, and research firms including Euromonitor International and McKinsey & Co.

Which trends are changing the course of China’s consumer economy? Click ahead to find out!

By Rajeshni Naidu-Ghelani
Posted: 28 July 2011

The article is summarized in this blog posting on Red Luxury

10 Top Consumer Trends of China’s Wealthy

With fast rising wealth and money to spend, it’s no surprise the Chinese are in a buying frenzy. China’s consumer spending is growing at an average annual rate of 18 percent compared to 2.2 percent rise for the US, according to the National Bureau of Statistics.

While some of their purchases are just plain glitzy, studies and research from organizations like the United Nations, Eurmonitor and McKinsey & Co. show that Chinese consumers are displaying great consciousness for bettering themselves and their planets.

Here’s a list of industries benefiting the most from China’s new fortunes. A few of these consumer trends may surprise you.

Luxury Goods
China is the fastest growing market for a plethora of luxury brands. In 2006, Gucci had 6 stores in China; now it has 39. Likewise, Hermes now boasts 20 locations, a number that has quadrupled since 2005. Luxury consumption is poise to be $27 billion industry by 2015.

Green Technology
Wealthy Chinese are putting their money to good use: 84% of consumers say they are willing to shell out more for products and services certified as “green.” Hybrid cars will make up 7% of China’s light-vehicle sales by 2020, compared to just 2% in the United States. China’s government also invested about $34.6 billion in renewable energy in 2009, twice as much as the US government.

International Travel
Travel is now a top priority for the wealthy in China. Large-scale group travel, coordinated by hotels and travel companies worldwide, is a booming industry. The Burj Al Arab hotel in Dubai has hired staff fluent in Chinese, created promotional content in Mandarin, and added Chinese cuisine to their menu. Another hotspot is Australia, where 450,000 Chinese visited in 2010 and spent $3 billion.

Foreign Real Estate
Tough property laws are driving Chinese real estate investors abroad. The US, Canada, and the UK are prime markets for Chinese buyers. In London, Chinese buyers are the largest single block of investors buying property, accounting for almost 11% of 2010’s sales.

Health Food
China’s rapidly growing middle class and wealthy seniors especially are calling for imported fruits, nuts, yogurt, and other trendy health foods. China’s probiotic market, for example, is expected to grow 120%  between 2009 and 2012.

Mobile Internet
The networking possibilities smart phones offer, like mobile web and instant messaging services, are hot in China right now, especially among urban youth. While Nokia dominates the market, buzz companies like Apple, HTC, and Huawei are gaining brand recognition. According to Wireless Intelligence, China will surpass one billion mobile connections by May 2012.

Wine
Chinese bought about 126 million cases of wine in 2009. The country will earn the United States’ current title of world’s largest wine consumer by 2015. Wine drinking, considered a healthier and classier alternative to spirits, is being promoted by the Chinese government as well.

Pets
Lots of disposable income means Chinese are expanding their families – fur families, that is. The one-child rule and an aging population has also made pets attractive. Dogs particularly are viewed as status symbols. A multimillionaire coal baron bought a Tibetan Matiff for about $1.6 million this year, while a Chinese woman paid $600,000 for the same breed in 2009.

Foreign Education
China’s overseas student population has increased 24 percent since 2009. With more middle-class families able to afford foreign education, Britain’s University of Cambridge boasted 1,000 Chinese students last year, making up 8.3% of the student population. American summer camps for younger children are considered culturally enriching as well. An estimated 60,000 young children, for roughly $5,000 a piece, attended American camps this year.

Corn
Only the US buys more corn than China now. The country’s corn imports – which are mostly eaten by livestock, not humans – will reach a record 5 million metric tons by the new year. China’s rising wealth is the driving force behind increases in high quality, grain-fed meat.

China’s Confident Consumers

A survey highlights how fast the market is changing.

November 2011 • Yuval Atsmon and Max Magni

Source: Marketing & Sales Practice

The Chinese have taken to consumerism with ease, embracing thousands of new products, services, and brands. But the flipside is that the Chinese market changes at a speed capable of leaving all but the nimblest of companies breathless, as McKinsey’s 2011 survey of Chinese consumers highlights.¹ Three findings stood out. Even in the face of rising inflation, Chinese consumers are more confident this year than in 2010 about their financial prospects. Among urban consumers, the number of first-time buyers—a group that has been a major driver of category growth in China—is declining. Finally, although brand awareness is rising, we see little sign that brand loyalty is following suit. In fact, more and more consumers choose among a growing number of favorite brands.

These and other findings from this year’s survey have clear implications for companies seeking to capture the next wave of consumer-spending growth in China. Any broad-brush approach to winning consumers’ rising spending power will miss the mark.

Consumers and inflation

At the end of 2010, annual inflation in China was 4.6 percent. By this August, it had reached 6.2 percent—close to its highest level in three years. This development is inevitably affecting real growth in consumption, which fell to 8.5 percent in 2010, from 9.4 percent in 2009. Still, our survey found that consumers are more confident about their financial future than they were last year, and this will probably affect their buying behavior. Fifty-eight percent of respondents said they expected their incomes to rise next year, compared with 39 percent in 2010.

No doubt reflecting this confidence, the survey shows that the number of respondents who choose to spend more—buying in greater quantities, more frequently, or more expensive items in a given category—is holding firm. Whereas last year’s survey showed that consumers offset higher spending in some categories by spending less in others, this year there appears to be much less rebalancing.

Also noteworthy is how consumers who spent more in 2010 than in 2009 account for their higher spending. On average across categories, some 50 percent of the survey participants identified inflation as the main reason. But of the remainder, 35 percent said they were trading up (buying more expensive goods in a given category), an increase from 26 percent in last year’s survey. Sixty percent said that buying in larger quantities or more frequently was the main reason for their higher spending, compared with 54 percent in last year’s survey. But only 5 percent of consumers said they were spending more because they were first-time buyers in certain product categories—down from 20 percent in last year’s survey—an indication of the growing maturity of many such categories.

Consumers and category growth

A decade ago, most category growth came from first-time buyers. But this is changing, as so many products are now both available and within the financial reach of large numbers of consumers. Big variations in the importance of first-time buyers have opened up, depending on the category and geographic region. Take large personal-care categories such as skin care and hair care, for example. In personal care, only 3 percent of respondents who said they spent more on the category in the past year were first-time buyers. In less mature niche categories (deodorants, for example), first-time buyers remain more important, as they are for several big-ticket items. In personal digital gadgets, for example, 23 percent of respondents said they had bought such goods for the first time.

At the geographic level, the penetration of certain goods may be high in China’s more economically developed regions, but plenty of consumer-conversion opportunities remain in less developed ones, which the government has targeted for higher economic growth. Again in personal care, the survey showed that 15 percent of consumers in the Chengdu cluster—the region that encompasses the western city of Chengdu, as well as the less developed surrounding cities of Mianyang and Neijiang—said they had started to use products in these categories only in the past year. Just 1 percent of consumers in the more developed Hangzhou cluster, which includes the cities of Hangzhou, Jinhua, and Linhai, gave that answer.²

Consumers and brands

Our survey detects no letup in the influence of brands on Chinese consumers’ buying decisions. But neither does it indicate strong signs of increasing loyalty to any single brand.

The survey shows the extent to which consumers value brands more than price or channel, largely because they believe that branded products are safer, of higher quality, and more reliable than nonbranded ones. But faith in brands still does not translate into brand loyalty. In fact, both the number of consumers who always choose from among a relatively small set of brands—whom we refer to as “repertoire loyalists”—and the number of brands in their repertoire continue to rise. The average Chinese consumer now chooses among three to five brands in any given category, compared with two to three brands two years ago. In some categories, such as apparel, where luxury brands have grown hugely popular, the contrast is sharper still.

To succeed in this environment, executives will need to understand where the growth prospects lie, both at the category level and in different geographic regions. Only then will companies be able to prioritize resources and tailor strategies appropriately, to strike a balance between building mass appeal and meeting the needs of specific consumer groups, to focus on perceived value rather than absolute price, to modernize marketing tools for the Internet age, and to embrace rapidly growing online sales channels quickly. Companies must have both the flexibility to adapt and the skills to innovate to keep in step with the Chinese market’s exciting development.

About the Authors

Yuval Atsmon and Max Magni are principals in McKinsey’s Shanghai and Hong Kong offices, respectively. This article is adapted from the McKinsey report 2011 Annual Chinese Consumer Study—The New Frontiers of Growth (October 2011), available on mckinsey.com.

Notes

¹ McKinsey’s 2011 survey of Chinese consumers was conducted between February and April of 2011 and is the sixth annual study on Chinese consumers’ shopping behavior. The survey interviewed 15,000 consumers in 49 cities, across four city tiers, six geographic regions, and 17 out of 22 city clusters that McKinsey defined. The survey covered consumers’ general attitudes, leisure-activity participation, and Internet usage, and dove deep into five categories, including apparel, automobile, consumer electronics, food and beverages, and home and personal care.

² In 2010, the Hangzhou cluster contributed 6.24 percent of urban GDP; the Chengdu cluster, 2.87 percent.

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