Consumer behavior changing

Slowing economic growth and changing consumer behavior are reshaping the strategies pursued by multinational companies in the Chinese market, as innovation and marketing are becoming more important than geographic expansion, a report by consultants Booz & Co said.

"Chinese consumers are increasingly opting for quality goods at higher prices and adopting online shopping and social media to gather product information, which are the two key trends driving company strategy in China," according to a report by the United States-based consulting firm.

The report's findings were based on an annual survey of 89 companies, mostly multinationals, conducted jointly by Booz and the American Chamber of Commerce in Shanghai.

The yearly survey began in 2011, and some of this edition's findings were already seen in China in previous years, said Steven Veldhoen, a partner with Booz, on Wednesday.

For the second year, companies ranked the evolution of consumers - from price-driven purchasers to value-driven consumers - as the top trend driving their China market strategy.

Chinese consumers, particularly in first and second-tier cities, are seeking greater reliability, consistency and integrity in consumer products.

"There is no revolutionary trend we see in the Chinese market this year, as was the case during the past decade. This is a signal that the market has started to stabilize," Veldhoen said.

"In the past, it was all about looking for new opportunities. But now, as the market stabilizes, it's more about developing your core competitiveness, and do what you do the best to establish yourself among consumers with an increasing desire for value," he said.

"There are companies that used to adapt to market change very quickly but didn't build their internal strength. These companies are really being hurt by current trends," said Adam Xu, who is with the consultancy's consumer and retail practice.

He quoted a senior executive from a leading international beverage company as saying: "When it comes to the beverage business, it was always about expansion. Now it's a mixed strategy of grasping new markets, but at the same time emphasizing per-store sales."

Xu said: "China is still a growth market, but it's shifting from a mode of extensive growth to a mode of intensive growth.

"In a way, it's consistent with the macroeconomic trend the Chinese economy is undergoing," he added.

The world's second-largest economy expanded 7.5 percent in the second quarter of this year, the second quarterly deceleration in a row. However, the situation is widely seen as a "controlled" slowdown, with the new government giving more importance to the quality of growth.

According to the survey, product development and marketing were the most important steps companies had taken to address the impact of consumer trends. Seeking geographic expansion and overseas markets were seen as less important among the interviewees.

Product innovation and development of marketing channels are the areas where company leaders are most likely to invest in over the next 12 months.

"China's rising middle class has high expectations of consumer products", said Robert Theleen, chair of AmCham Shanghai.

"With the rise of e-commerce and social media, online marketing channels and Internet forums offer a platform for consumers to gather the intelligence they need to make informed purchasing decisions," Theleen said.

"In China, consumers are sophisticated in using social networking platforms to form alliances with like-minded consumers... Companies must be alert to the power of online activities, with opportunities for online engagement to enhance or harm a brand," he continued.

The success of China-based smartphone maker Xiaomi Inc is a good example of a company capable of integrating intelligence gleaned online into its business process, Xu said.

For product development, Xiaomi solicits suggestions for new features and improvements from an online community of brand followers. Most of its products are also sold online through preorders, giving it manufacturing and marketing edges.