The Chinese market is very large and constantly growing. With the current interest towards Western products, and with the known quality of the German ones, the Chinese market looks like a very promising place to expand.
In this part of the paper, we will focus on market segmentation and targeting, more precisely on what the target group for our product is and how we can achieve maximum product recognition and sales. The Chinese market will be analysed from the demographics, lifestyle and geographical perspectives, to get the most accurate image of a customer for our product. We will also use the STP approach for best results:· Segment your market· Target your best customers· Position your offering (Market Positioning – Mission) 1. Demographics – As mentioned in a CBNData report, the main target audience will be women, and among the consumers, the majority of them is aged 23 to 38 years old but the age gap is becoming increasingly bigger, as more and more older people purchasing products for their children and grandchildren.2. Lifestyle – usually it’s the wealthier people of china, as income also directly affects their ability to purchase imported bio products from Germany. Of course, the price will try to stay competitive. There is an increasing trend of luxury items in China that creates a large number of customers, due to the constantly expanding upper-middle class sector and shrinking lower-middle class sector.
Building the right strategy is key, and depending on it, our product could also target lower income groups due to its quality and the natural ingredients used – people want the best for their children. There are certain brands, such as Gucci, MCM, Porsche and many others that only target the higher end of the spectrum. Other European or American products, while still expensive, are open to a broader audience of consumers that don’t only take price into account, but also the quality of the product.
Although BIO Baby will be times more expensive than the Chinese competition, the price point will be around the same level as its European competition from Nestle and Johnson & Jonson. It is highly possible that low to medium-income families will still choose to purchase from us, due to higher quality and the all natural nature of the product – a recent survey revealed that 70% of Beijingers are still hesitant to buy a Chinese brand of baby products simply because they are worried about safety, despite the authorities stating that 99% of the formula produced is safe. This reveals the ongoing lack of confidence when it comes to the domestic industry.
Those concerns are unjustified, but it is a benefit for European brands to further occupy the Chinese market of baby products.3. Geography – Chinese consumers can be divided into 4 tiers based on their geographic location, population and GDP. In the case of BIO Baby, as a better, but more expensive alternative to Chinese products, the main focus will be on tier-1, tier-2 and tier-3 consumers, because middle to higher class customers are targeted.
Consumers from China’s tier one and tier two cities were the main contributors of infant formula consumption, based on the CBNData report. Also, the majority of the consumers will be from the eastern part of China. Meanwhile, the report also predicted that for the developing areas in China, online stores would be a very promising way to increase the sales of infant formula and other infant products, supporting our idea to create an online baby product platform.To specifically target and position the product within our customer group, we will need to develop our presence in the digital ecosystem. From a social media perspective, the first obvious choice would be WeChat – it is a tool that is used on a daily basis by almost everyone who has a smartphone in China; the app can do anything from chatting with your friends to payments in store and online. Customers also use the network to perform searches and gather information. Integrating with WeChat through an official page for the product, will allow us to interact with potential customers and turn them into buyers.
To further target our customers, we could promote BIO Baby on various communities and forums, such as babytree.com. Unlike western countries, where forums are becoming increasingly unpopular, In China, it is the opposite. Customers find comfort in purchasing a certain product by finding someone who purchased the same product on a forum, or getting a recommendation from someone as baby products require extensive research before buying. Developing an online presence on such platforms is a very useful tool to increase brand visibility and recognition.
Daxue Consulting suggests that it is possible that two or more market segmentations to be used in the Chinese market. This is because the taste of potential consumers in China is different from that of the Europeans due to its unique culture. Therefore, a good market strategy is a must. The baby product market is a rather unique one. People tend to buy the best products, despite the high price, especially in China.
Of course it makes sense, as people want to offer the best quality products to their infants.Due to the fact that BIO Baby is a completely natural product, meaning higher quality, the price of it will also be higher than the competition – this doesn’t mean that the sales will be low, as organic/bio products are becoming increasingly popular in China and customers are willing to pay more for them, especially when it’s a baby product.Johnson & Johnson, Nestle and other brands that have been market leader for years, have been using a similar pricing strategy when they entered the market with their conventional baby products. BIO Baby, in cooperation with Hipp Bio, will be one of the first companies in China to offer such a product, justifying the higher price.After analysing a few German retailers selling products in China, the average price increase for these products is around 350%Of course, this kind of margin won’t be applicable to all products, as certain products – such as baby formula, will be more popular than others.
Cosmetics and household products usually have a higher margin, while groceries a lower one (around 200% for most items). To ensure a competitive environment, the average price will be around 250% higher than in Germany, taken into consideration all other costs (transportation, storage, platform, etc.). The current price of baby milk in China is much higher than in European countries. An 800ml box of traditional formula costs around 50 Euros in China and 20 Euros in Germany, which is exactly 2.5 times more expensive – the margin we are aiming for.