Roland Berger Strategy Consultants Issue 06 09

Study
In-depth knowledge for decision makers

ChinesE Consumer REPORT 2009

Roland Berger Strategy Consultants
Charles-Edouard Bouée,
Regional Coordinator Asia,
President & Managing Partner,
Greater China
Dear Reader,
Over the past 20 years, Roland Berger has conducted more than 80,000 interviews
in China with people from all walks of life, giving us unprecedented access to the way
Chinese consumers see their world. We have found out about their preferences and
dislikes, their hopes and fears, their aspirations and what they are happy with in the
status quo.
These interviews were mostly held in connection with one of the more than 200 assign-
ments we work on in China each year, affording us unrivalled insight into the Chinese mar-
ket. For at least 15% of these assignments we have used our Roland Berger Profiler tool to
analyze the behavior of Chinese customers.
To keep on top of developments in 2008/2009 we felt it was important to conduct a large-
scale survey to consolidate our knowledge of this exciting and still growing market. This
study presents you with some of the results of this undertaking, which covered 12,000
Chinese consumers in 64 cities, ranging from the four megacities Shanghai, Guangzhou,
Shenzhen and Beijing down to tier-3 cities.
Ignatius Tong, Partner and Vice President, Consumer Goods and Retail in China, believes
knowing the customer base is vital for any business striving to penetrate or survive in the
Chinese market: "More than ever, it is critical for FMCG to be tailored to specific consumer
needs. This requires a more insightful understanding of consumers that goes beyond mere
demographics." John Shen, Partner in Automotive, agrees and points out how critical brand
management has become: "Brand loyalty can only be nurtured and enhanced through the
consistent delivery of brand values at every customer touch point. Brand strategy and
brand management should be at the top of the agenda for every CEO."
We are delighted to be able to include interviews with two CEOs of Western companies
which have been operating successfully in China for many years: Paolo Gasparrini, CEO
of L'Oreal China and Günter Butschek, President and CEO of Beijing Benz Daimler-Chrysler
(BBDC). Their impressions about the future of the Chinese market will be of great interest
to any reader working or investing in China.
The following report is the first of what we're hoping will become an annual cornerstone
of insight into the Chinese consumer market. In 2009 everybody will be looking to under-
stand the unfolding domestic consumption in China as exports suffer due to the world eco-
nomic crisis. In this environment we are looking forward to continuing to assist businesses
in China in developing the domestic customer base and defining winning road-to-market
strategies for our clients in this country.
 Study 3

A. Method and Scope 04

B. The ChinesE Consumer 08

1 SIx Recommendations 08

2 Chinese Surprises 18

3 Know your archetypes 21

ContentS
4 Sample Industries: The cosmetics market 28

5 Sample Industries: The automotive industry 33

6 Straight from the horse's mouth 37

C. About...

... Roland Berger 42

... Cic 43

... L'oréal 44

... BBDC 45

D. Contacts 46
Roland Berger Strategy Consultants

Experience and empirical research: Getting to know

A. Method and Scope the Chinese consumer

Recently, Roland Berger conducted a survey to analyze Chinese consumers.

Over the course of two months, over 12,000 individual interviews were conducted
with consumers between the age of 18 and 64 in a representative study.

"Both emotional and ratio-
nal benefits should be taken
into account when defining
brand positioning. We need
to go beyond functional
benefits and address the
self-expressive needs of
consumers as well, subtly
symbolizing the life atti-
tudes of the target group."
John Shen, Partner
(Automotive CC)
Of our respondents, 14% lived in one of the four
Chinese megalopolies, 43% in a tier-1 city, 27%
in a tier-2 city and 16% in a tier-3 city. Altogether
we covered 64 cities in the country, ranging from
Shanghai with 18 million inhabitants to small cities
of about 1 million people.
Consumers were asked questions regarding brand
perception and differentiation, consumption
behavior and purchase patterns as well as lifestyle.
This method was in line with the basic methodology
of the RB Profiler, developed and used international-
ly by Roland Berger Strategy Consultants.

We added this latest research to the knowledge

gained in over 20 years of working in China and a
total of about 80,000 interviews. We can thus give
you a real insight into the minds of your potential
customers.

Tailor your customer
approach to their values
When brand values and consumers' value
systems converge, the consumer is likely
to purchase the product. The RB Profiler
helps you create such a fit.
Every consumer has his or her own set of
values, desires and aspirations to which
he or she attaches varying degrees of
importance (figure 1).
This complex set of values, or value profile,
influences how individuals make purchas-
ing decisions. The link between the values
and the concrete purchasing decision is
formed by the brand's value proposition −
the values it projects into the market via
its logo, product design, communication,
price, etc. At the moment of the buying
decision, these two value systems come
together. This is the "moment of truth."
When a brand's value profile and a con-
sumer's value profile converge, then the
consumer perceives the brand as "his" or
"hers" and is likely to purchase it.
A brand's value proposition thus needs to
be aligned with the value profile of its
target group. This is where the RB Profiler
steps in. It helps you see the fit between
consumers and brands, providing a way to
measure and quantify the value systems
of consumers and brands using the same
methodology. The RB Profiler is a vehicle
for values-based brand and marketing
management and creates a lasting
competitive advantage (figure 2).
HOW IT WORKS
At the core of the RB Profiler are 20 funda-
mental values describing all aspects of
an individual's consumption behavior.
The axes of the matrix measure degrees
of emotionality/rationality and of maxi-
malism/minimalism. All the values are
elicited from consumers using carefully
developed attitudinal statements, and can
be measured and validated quantitatively.
Study 5
There are four main areas where the
RB Profiler can be applied:
 
It measures brand perception from
a consumer perspective, including
comparisons with competitors or
with other brands in a company's
portfolio
 
It identifies consumer needs, defines
consumer segments and evaluates
their attractiveness. It helps in ana-
lyzing the brand projection in commu-
nication and at the point of sale and
enables companies to compare the
current situation with their own targets
 
Due to its intuitive nature and the fact
that the results are statistically proven
on a quantitative basis, it supports
direct buy-in from your organization
and easy implementation into the
marketing mix
 
It helps with brand monitoring,
tracking and controlling
Roland Berger Strategy Consultants

THE MEANING OF VALUES

Fair: high ethical standards, social

awareness, solidarity Figure 1
Nature: high ecological standards Consumer value profiles
Purism: minimalism, understatement, The RB Profiler enables consumer and brand values to be visually represented
reduction to essentials in a value grid
Tranquil: calmness, relaxation,
Peter
harmony
Prestige: status orientation,
E E
expressiveness, attention-seeking Prestige Thrill & Prestige Thrill &
Fair Entertainment Fair Entertainment
Vitality Vitality
Vitality: mental and physical fitness, Classic
Nature Classic Carefree Nature Carefree
activity, independence
Tranquil Clanning Cool& Tranquil Clanning Cool&
Classic: timelessness, elegance, Purism Trendyy Purism Trendyy
– Security + – Security +
aesthetics, design orientation Service
Innovation
Service
Innovation
& Protech
Security: averseness to risk, Smart Quality
& Protech
Smart Quality
Shopping Personal Shopping Personal
"safety first" Efficiency Efficiency
Proven Proven
Clanning: friends, family, Total Cost
Customized
Total Cost
Customized
team spirit R R
Thrill & Entertainment: risk,
adventure, having fun, enjoying life
Carefree: easygoing, spontaneity,
1

optimism
Cool & Trendy: trendsetting,
innovation, self-differentiation VALUE GRID
Pro-tech: high-tech, cold trans- E = emotional = pro-values
actions R = rational = anti-values
Personal Efficiency: efficient + = more consumption <Values> = fundamental values
performance, just-in-time, comfort, – = less consumption of consumers
convenience
Customized: individualization,
exclusivity, flexibility, variety
Service: clear information, uncompli-
cated fulfillment, competent advice,
warm transactions
Quality: longevity, reliability
Proven: scientific proof, authority,
traditional/tried and tested products
Smart Shopping: bargain hunting,
excellent value for money
Total Cost: frugality, penny-pinching,
price-defined buying decisions
 Study 7

Figure 2
Understanding consumer behavior
By matching the consumer and brand profiles, the RB Profiler makes it possible to predict consumer behavior

Consumer PROFILES BRAND PROFILES

Peter Brand A
"Kevin Gong" Brand A
E E
Prestige Thrill & Prestige Thrill & Kevin Gong is very performance-
Fair Entertainment Fair Entertainment
Vitality Vitality
Classic Classic
oriented – efficiency, innovation
Nature Carefree Nature Carefree
Clanning Clanning
and quality are more important
Tranquil Cool& Tranquil Cool&
Purism Purism to him than a low price
Trendyy HIGH Fit Trendyy
– Security + – Security +
Service Service
Innovation
& Protech
Buy Innovation
& Protech
Smart Quality Smart Quality Kevin Gong chooses BRAND A –
Shopping Personal Shopping Personal
Efficiency Efficiency the brand is expensive, but stands
Proven Proven
Total Cost
Customized
Total Cost
Customized
for innovation and high quality
R R
Lo
w
No

Fit
Bu
y

3 4
Fit
w

Brand B
Lo

Ben
Bu

"Wendy Meng" Brand B

No

E E
Fair
Prestige Thrill &
Entertainment
Prestige Thrill &
Entertainment
Wendy Meng is a very responsi-
Fair
Vitality Vitality
Classic Classic
ble person – she cares about the
Nature Carefree Nature Carefree
Tranquil Clanning Tranquil Clanning
environment and social issues
Cool& Cool&
Purism Trendyy HIGH Fit Purism Trendyy
– Security + – Security +
Service
Innovation Buy Service
Innovation
Wendy Meng chooses BRAND B
& Protech & Protech
Smart Quality Smart Quality – the brand appeals to her high
Shopping Personal Shopping Personal
Proven
Efficiency Efficiency ethical and ecological standards
Proven
Total Cost Total Cost
Customized Customized
R R

5 6
Roland Berger Strategy Consultants
1 Six Recommendations
B. The Chinese Consumer
It is well established that Chinese society
is extremely intricate, complicated and
dazzling in its complexity. The country and
its people are fascinating and Western
minds often struggle to make sense of the
country's many facets. Anyone who wishes
to do business in China is well advised to
study the market carefully before ventur-
ing into such unknown territory.
To sales and business development man-
agers everywhere, the Chinese consumer
seems a mysterious creature. Although
China is the world's third largest economy,
little is known about the preferences of its
consumers – we are used to seeing
the Chinese as producers rather than
consumers.
With China's economy expected to grow
by roughly 7% even in these economically
turbulent times, it's time to get to know
the Chinese consumer a little better. To
get you started, here are six points that we
have distilled from the many insights that
our survey affords us. These points can be
seen as general recommendations for any
business that is in China already or is plan-
ning to go there.
 Don't disregard the smaller cities
 Concentrate on under-40s
 Strengthen your brand
 Channels are critical
 Go green
The difference between
big and small
China's four largest cities are Beijing,
Guangzhou, Shenzhen and Shanghai.
Together they have an astonishing 57 mil-
lion inhabitants with a share in national
GDP of around 14%. These port cities are
traditionally more open to foreign ideas
and steeped in a tradition of trading. Their
inhabitants form the most sophisticated
consumer base in China and can be relied
upon to be early adopters, willing to spend
more on leisure and adept in the use of the
Internet and other modern media.
We use the term megacity for these four
cities, meaning that they are the largest,
most developed, and highest profile cities
in the country.
Besides the four megacities, China has
what we call tier-1, tier-2 and tier-3 cities.
An example of a tier-1 city is Chengdu, the
capital of Sichuan province in the heart of
the country. This city is a trading hub and
its metropolitan area has over 10 million
inhabitants. A China Daily survey recently
listed Chengdu as the fourth most liveable
city in China. Xiamen, another tier-1 city,
is a much smaller coastal town with 2.6
million inhabitants. Cities are not neces-
sarily defined by their number of inhabit-
ants, but by their relative economic and
social importance. Xiamen might be small,
but in 1981 it was one of the first four
special economic zones introduced by the
Communist Party and today has a large
industry base, making it an affluent city.
Shaoxing and Datong are examples of
tier-2 cities, with 4.3 million and 3.1 million
inhabitants respectively. Datong in the
northern Shanxi province is a coal-mining
town with a history and economy closely
tied to this industry. Shaoxing, the birth-
place of Communist Party leader Zhou
Enlai, today has a GDP of RMB 222.3 billion.
 Study 9

Tier-3 cities are usually much smaller

Figure 3 and their importance is mainly regional.
Comparison of overall consumption patterns in different tier cities Examples are Tongcheng situated in Anhui
province, with roughly 744,000 inhabit-
ants, and Fengcheng situated on the
Mega City 1st Tier city
Megacity Tier-1 Yellow Sea coast in the southeast, with
E E around 630,000 inhabitants.
Prestige Thrill & Prestige Thrill &
Fair Entertainment Fair Entertainment
Vitality Vitality
Classic Classic
With China being as big and confusing as
Nature Carefree Nature Carefree
Tranquil Clanning Tranquil Clanning
it is, it is easy to concentrate sales and
Cool& Cool&
Purism Trendyy Purism Trendyy marketing efforts on the four biggest and
– Security + – Security +
Service
Innovation
Service
Innovation best-known cities. This, however, would
& Protech & Protech
Smart
Shopping
Quality Smart
Shopping
Quality be a fatal mistake. Whilst potential
Personal Personal

Proven
Efficiency
Proven
Efficiency customers in smaller cities might have
Total Cost Total Cost
Customized Customized different preferences and spending
R R patterns, they are certainly as interested
in consuming as their fellow nationals
in bigger cities and they also have an
2nd Tier city 3rd Tier city
Tier-2 Tier-3 1
increasing amount of disposable income.
2

E E
The smaller cities might well be home
Prestige Thrill &
Entertainment
Prestige Thrill &
Entertainment
to your best customers.
Fair Fair
Vitality Vitality
Nature Classic Carefree Nature Classic Carefree
Tranquil Clanning Tranquil Clanning
See figure 3 to get an idea of the compara-
Cool& Cool&
Purism Purism
Trendyy Trendyy tive overall consumption profiles for the
– Security + – Security +
Service
Innovation
Service
Innovation
different city tiers.
& Protech & Protech
Smart Quality Smart Quality
Shopping Personal Shopping Personal
Efficiency Efficiency
Proven Proven
Total Cost Total Cost
Customized Customized
R R

3 4
Roland Berger Strategy Consultants

Figure 4
The person behind the profile
A possible translation of our
average consumption profiles

Susan Gan Works as a systems administrator for a

major Chinese company
from Ghuangzhou
Megapolis Single, 35  Main source of news: Internet
Megacity  Newspaper: national daily
E  Credit cards owned: two
Prestige Thrill &
Entertainment
 Use of credit card:
Fair
Vitality several times a week
Nature Classic Carefree  Travels for leisure:
Purism
Tranquil Clanning Cool& twice a year
Trendyy
 Clothes shopping: once a week
– Security +
Service
Innovation
 Preferred grocery shopping: mall
Smart Quality
& Protech  Accommodation: One bedroom flat
Shopping Personal near the city center
Efficiency
Proven  Hours spent watching
Total Cost
Customized TV a day: 1
R  Hours spent using the
Internet a day: 3
 Likes: risk-taking, innovative things,
trendy features, just-in-time, price-
1 defined buying decisions

Neil Zheng Runs a small stationery shop

from TIER-3 city  Main source of news: TV
3rd tier city
Tier-3 Married, 43, one child  Newspaper: local daily
 Credit cards owned: none
E  Use of credit card: never
Thrill &
Fair
Prestige
Entertainment  
Travels for leisure: once every
Vitality
Classic
three years
Nature Carefree
 Clothes shopping: twice a year
Tranquil Clanning
Purism
Cool&
Trendyy
 
Preferred grocery shopping:
– Security + supermarket and own plot to
Service grow vegetables
Innovation
& Protech
Smart Quality  
Accommodation: Small house in
Shopping Personal
Efficiency the suburbs
Proven  Hours spent watching TV a day: 3
Total Cost
Customized  
Hours spent on the Internet
R
a week: 1
 
Likes: fitness, family, elegance

2
 Study 11

To show you what these profiles could

translate into, we have developed two
prototype customers, one from one of
China's four largest cities (Susan Gan)
and one from a tier-3 town (Neil Zheng).
For easy reference we have juxtaposed
their typical behavior, showcasing the
development of the Chinese consumer
across the board (see figure 4).

The notable differences between the two

are obvious at first glance. For example,
"Innovation and Pro-Tech" are of very little
interest to tier-3 cities. Tier-1 types on
the other hand attach great importance
to "Vitality" and "Clanning". Looking at the
color distribution of these prototype city
dwellers, it is clear that their preferences
and interests are often diametrically
opposed.

Note the sensitivity to "Total Cost" which

is high in tier-1 cities, but neutral in tier-3
cities. Instinctively we would assume big
city tiers to be big spenders. However, it
turns out that China is good for a surprise
here – it's the people in smaller cities
who are more relaxed about price-benefit
ratios and their saving accounts.
Roland Berger Strategy Consultants

Figure 5
The person behind the profile
A possible translation of our average
consumption profiles

Consumer profile: age 30-39

Consumer profile: age 30-39
Laura Hua, 32
E Clothes shopping: twice a month
Prestige Thrill &
Fair Entertainment
Vitality  Buys skin care products in a
Nature Classic Carefree specialized shop
Tranquil Clanning Cool&  
Pays more attention to brand
Purism Trendyy
than price
– Security +
Service  Uses the Internet for shopping
Innovation
Smart Quality
& Protech  Uses teleshopping or mail order
Shopping Personal  
Likes: innovative products,
Efficiency
Proven new features, just-in-time
Total Cost
Customized
R

Consumer profile: age 40-49

Consumer profile: age 40-49
Shi Zhi, 48
E Clothes shopping: twice yearly
Prestige Thrill &
Fair Entertainment
Vitality  
Buys skin care products
Nature Classic Carefree in a supermarket
Tranquil Clanning Cool&  
Pays more attention to
Purism Trendyy
price than brand
– Security +
Service  
Uses the Internet for some
Innovation
Smart Quality
& Protech shopping
Shopping Personal  
Does not use teleshopping
Efficiency
Proven or mail order
Total Cost
Customized  Likes: comfort, convenience,
R bargains, independence

4

Age is more than a number
Our data shows clearly that the age of
40 denotes a threshold in consumer
behavior in China. There are many reasons
for this. One of the most important is that
people under 40 have spent all of their
adult life in a time of market-oriented
reforms which began under Deng Xiaoping
in the early 1980s.
To highlight the main differences be-
tween someone in the 30-39 age group
and someone in the 40-49 age group, we
have used our research to construct two
more prototype consumers: Laura Hua,
32, from Guangzhou and Shi Zhi, 48, from
Beijing. Figure 5 shows the RB Profiler
blueprints and possible examples from
both age groups.
Consumers aged between 30-39 are
the most important target market at the
moment. They are more open to innova-
tions than their elders and have more
disposable income than those younger
than they.
Companies need to watch the develop-
ments in younger age segments if they
want to benefit from future high-income
consumers. Trends are likely to echo those
of earlier young consumer generations in
more advanced economies.
Brands do matter
The Chinese are extremely interested in
brands and attach a lot of importance
to which brand they buy. Any product or
service intended to penetrate the Chinese
market needs to establish a strong brand.
Study 13
Regardless of geographical location,
age or economic circumstance, 90% of Figure 6
those surveyed say that they have I pay more attention to brand
"confidence in products made by well than to price
established and experienced suppliers".
35% 33%
In any event, most brands that are trusted 31%
in China are Chinese; indeed it is often 25%
stated that local brands cater better to 23%
customers' taste and needs.
Age is also a factor for brand importance. 18-24 25-29 30-39 40-49 50-64 (age)
Younger people pay more attention to
brands. Geography does not seem to
matter all that much: People in Beijing and
people in small towns think of themselves
as roughly equally knowledgeable regard- Many multinational brand manufactur-
ing fashion. ers have adapted their logos for China
On the surface, brand loyalty seems to be
driven by nationalistic considerations, with
people assuming they can trust Chinese or
local brands more than foreign ones.
However, it turns out that some of
the most trusted brands mentioned
by respondents are in fact foreign,
especially in Western China; the respon-
dents think of them as Chinese, just
because they are known to be good.
This goes to show that Chinese consumers
will base their brand loyalty also on qual-
ity and price rather than just on whether
something is "made in China". Consumers
in the highest segment, with an annual
income of RMB 250,000 and above, are
most interested in Western brands and
have a clear understanding of what's
Western and what's not. These segments
also show the highest interest in Western
culture and are, either through economic
ability or intellectual interest, more open
to foreign influence and ideas in general.
Roland Berger Strategy Consultants
Critical channels
In China, as everywhere else, there are
traditional sales channels such as shops
and markets, and new channels such as
the Internet and TV. Unsurprisingly, young
customers are those most likely to use
the Internet, with 7% of 18- to 24-year-
olds preferring to shop for clothes on the
Internet as opposed to only 1% of over
40-year-olds.
To get a product to the customer, the right
choice of channel is critical. Whilst custom-
ers in the four largest cities prefer the mall
for grocery shopping, only 20% of tier-3
city inhabitants do the same. Mall prefer-
ence is strongly influenced by city size –
more than by income.
Western retailers that have been active
in China since the 1980s have been quite
successful in penetrating the market,
particularly the French supermarket
chain Carrefour. On January 9, 2009 the
chain opened its 134th hypermarket in
China, this time in Beijing. Their American
rival, Wal-Mart, has also been successful,
recently opening its 100th store. Wal-Mart
China President and CEO Ed Chan has
stated that his company is committed to
bringing its superstores to tier-2 and tier-3
cities throughout the country.
Mall or free-standing superstore? Which
channel is best depends more on geog-
raphy than income, as figure 7 clearly
shows. Carrefour and Wal-Mart are using
both channels, but their superstores are
frequently so large that they are stand-
alone rather than attached to a mall.
Malls are not only popular with the
expected groups: some provinces such Figure 7
as Chongqing have also declared a clear People's preference for malls is
preference for malls. more influenced by size of city than
by income
With 250 million users in China, the
Internet certainly is a force to be reckoned Named "mall" as a preferred channel
with. Younger users and those in the top for household grocery shopping
four cities are more likely to use it for 63%
shopping, whereas the older generation 54%
and those in provincial towns are more
TV- focused. 34%
21%
Apart from a pure sales channel, the
Internet should be viewed as an
essential PR tool when it comes to Mega Tier-1 Tier-2 Tier-3
reaching the younger and more affluent
parts of society. Chinese bloggers have
considerable influence in a country which
still suffers from censorship, and compa-
nies that are in their bad books can suffer Malls given as a preferred channel
significantly. for household grocery shopping
35%
33%
The devastating earthquake in China in 31%
early 2008 is a case in point. Dior Group 25%
21%
was forced to drop actress Sharon Stone
from their advertising in China after she
claimed the disaster was "karmic retribu-
tion" for China's treatment of Tibetans. < 5000 5,000- 50,000- 100,000- 150,000-
49,999 99,999 150,000 250,0001)
Bloggers immediately called for a boycott
1)
Income (RMB/yr)
of Dior's products. Similarly, when Chinese
Paralympic athlete Jin Jing was attacked
in Paris during the Olympic torch relay,
Carrefour, normally strong in China, suf-
fered from a customer boycott started by
bloggers.
Equally, the Web can be exploited to
improve a company's image; companies
like GE or Wal-Mart that gave generously
after the earthquake received an immedi-
ate positive echo in the blogs around the
country.

Go green
Figure 8 Surprising as it may seem, concern for the
Preference for green products within environment is equally widespread across
different consumer segments all types of consumers in China, at least
when it comes to shopping.
I do not buy products produced by
companies that harm the environment Young or old, province or big city, large or
(agree to some extent or strongly small income, between 84% and 88% of
agree) respondents said they try to avoid compa-
nies that harm the environment and pro-
85% 85% 84% 88%
fessed a preference for green products.
The green market in China is still extremely
underserved. This is not surprising in a
country that has so much catching up to
do in economic development terms. Now
that China has overtaken Germany as
Mega Tier-1 Tier-2 Tier-3 the world's third largest economy, more
and more Chinese can afford to put their
money where their mouth is.
I would choose green products
92% 93% 91% 92% 91% Companies should leverage this new
green consciousness. Some are already
doing so: In January 2009, Wal-Mart China
announced a push towards sustainability,
which includes opening new stores that
use 40% less energy, reducing plastic
bag use by 80% and increasing water
efficiency by 50%. The ambitious tar-
18-24 25-29 30-39 40-49 50-64 (age)
gets were announced on the company's
website – an indicator of the importance
attached to the message.
Wal-Mart is also addressing another fac-
tor: While pushing their green credentials,
they are continuing to stress their policy of
offering high-quality products at the best
price. The Chinese are still cost-sensitive
and the premium put on being green is
not quite as high as in Western countries.
However, environmental concerns will
Study 15
grow in the future, and companies
should not underestimate green issues
as a powerful marketing tool.
The car market is a case in point. To date,
there are hardly any hybrid cars in China:
yet the Chinese car market is expected
to overtake the US as the world's biggest
within the next decade. Shanghai General
Motors is testing the market with its first
locally produced hybrid model, which is
priced slightly higher than the standard
model but is 15% more efficient in terms
of fuel consumption.
With 1.3 billion people, China could have
more than 100 million cars on the road if
the market expands at the average global
level of 10%. China has to take a lead in
alternative technologies: the world simply
doesn't have the energy resources to
sustain such growth with conventional
technology.
The Chinese are generally not yet as con-
cerned about climate change and a dete-
riorating environment as Westerners are.
But environmental concerns are sure to
increase, and companies would do well to
prepare for this eventuality now.
Roland Berger Strategy Consultants

Improve your definition

Using the RB Profiler, we can distill the Figure 9
brand image of specific companies. We did Brand manufacturers often lack a clear brand positioning
so for a number of different product areas:
Ford Toyota
 Beer Ford Toyota
 TV sets E E
 Cell phones Fair
Prestige Thrill &
Entertainment Fair
Prestige Thrill &
Entertainment
Vitality Vitality
 Cars Classic Classic
Nature Carefree Nature Carefree
 Skin care products Tranquil Clanning Tranquil Clanning
Cool& Cool&
Purism Purism
 Credit cards Trendyy Trendyy
– Security + – Security +
Service Service
Innovation Innovation
& Protech & Protech
The overall impression from our analy- Smart
Shopping
Quality Smart
Shopping
Quality
Personal Personal
sis is that in some industries, brand Proven
Efficiency
Proven
Efficiency

Total Cost Total Cost

manufacturers lack a clear brand image. Customized Customized

Improvements in positioning are urgently R R

required to build a more solid and well-
defined customer base.
Dongfeng Volkswagen
Dongfeng Volkswagen
Figure 9 clearly shows that Volkswagen E E
and Dongfeng are the only brands that Prestige Thrill &
Entertainment
Prestige Thrill &
Entertainment
Fair Fair
Vitality Vitality
benefit from even an approximation of a Classic Classic
Nature Carefree Nature Carefree
brand image. However, Dongfeng has joint Tranquil Clanning Tranquil Clanning
Cool& Cool&
Purism Purism
ventures with Nissan, Honda and PSA, Trendyy Trendyy
– Security + – Security +
which makes the Dongfeng profile a corpo- Service
Innovation
Service
Innovation
& Protech & Protech
rate profile rather than a product profile. Smart Quality Smart Quality
Shopping Personal Shopping Personal
Efficiency Efficiency
Proven Proven
In VW's case, the product itself is seen Total Cost
Customized
Total Cost
Customized
as representing a modern, performance- R R
driven brand. Customers think that the
brand is expensive, but they value the
brand image above cost considerations. In 12

Dongfeng's case, it is the company that is

perceived as representing these values,
not the product itself. There is a solid value
proposition at the corporate level owing to
the company's JVs. Assuming the ability to
develop the necessary R&D capacity, this
might allow Dongfeng to eventually launch
its own sub-brands with some success.
 Study 17

Ford and Toyota, on the other hand, suffer

Figure 10 from a very weak brand image. Their
Weak brand image is also found for some TV manufacturers customer base is ill-defined, making a
positioning decision difficult if not impos-
sible. If the Chinese auto market slows
Samsung Sony
Samsung Sony down for whatever reason, this could mean
E E serious trouble. Foreign manufacturers
Fair
Prestige Thrill &
Entertainment Fair
Prestige Thrill &
Entertainment
also have to prepare themselves for strong
Vitality Vitality
Classic Classic
Chinese brands emerging from successful
Nature Carefree Nature Carefree
Tranquil Clanning Tranquil Clanning
JVs that have produced strong corporate
Cool& Cool&
Purism Trendyy Purism Trendyy profiles, as in the case of Dongfeng. To
– Security + – Security +
Service
Innovation
Service
Innovation brace themselves against such difficulties,
& Protech & Protech
Smart
Shopping
Quality Smart
Shopping
Quality automakers are well advised to reinforce
Personal Personal

Proven
Efficiency
Proven
Efficiency their brand image, find their specific cus-
Total Cost Total Cost
Customized Customized tomer base and cultivate their preferred
R R channels.

A similar picture emerges for the makers of

Changhong Skyworth
Changhong Skyworth 5
TV sets. Two foreign brands have managed
6

E E
to establish a clear reputation for quality
Prestige Thrill &
Entertainment
and modernity; the others, regardless of
Fair
Vitality
Classic
their origin, are weak in comparison. TV
Nature Carefree
Tranquil Clanning
makers should heed the same recommen-
Cool&
Purism Trendyy dations as for automakers: A clear brand
– Security + – +
Service
Innovation
image is the first step towards surviving in
& Protech
Smart Quality a more difficult and sophisticated market.
Shopping Personal
Efficiency
Proven
Total Cost
Customized Foreign companies need to invest a great
R R deal of time in learning about the Chinese
customer. They need a strong local
management team in place to adapt to a
7
rapidly developing market − one that is
19

poised to become the world's largest and

most important.
Roland Berger Strategy Consultants
2 Chinese Surprises
China is unique among the nations of
our planet. It is home to the world's larg-
est population, it is governed by the
Communist Party and it has experienced
unprecedented economic growth over
the past 30 years. Even now, with the
global economy in the doldrums, China
still expects roughly 7% growth for 2009.
Most companies have very little or no
experience in such a market, making it
doubly important to invest in extensive
research before venturing into China.
Western companies that have so far been
successful in the country have usually
spent years planning their market entry
before going there. In China more than
elsewhere, unexpected tendencies in the
general development need to be taken into
consideration at all times. It is not enough
to trust your feelings or base your judg-
ment on Western market circumstances.
We identify four critical factors that need
investigating by any company wishing to
establish a clear brand image in China:
 
Regardless of city tier, leisure spend-
ing remains roughly equal – it's the
frequency of leisure pursuits which
differs
 
Average family size is connected to
income rather than geography
 
People consider themselves to be
fashionable in most parts of the
country, regardless of city tier
 
Interest in Western culture is evenly
spread among all of society
leisure habits
The most costly and time-consuming Figure 11
leisure activity is travel. We therefore Differences by age group
looked at the travel habits of our
respondents. Number of trips per year
1.5 1.5 1.2 1.0 0.8
Companies in China have been quick to 1.2
react to the newfound taste for leisure
spending in their country. Ctrip, a full-
service online travel booking service estab- 18-24 25-29 30-39 40-49 50-64 (age)
lished in 1999, has been experiencing a
50% growth rate for the past few years.
Some 30% of trips taken are package tours Differences by city tier
and about 25% of trips are beach holidays.
Trips per year
The general leisure trends are not unlike 1.8 1.1 1.1 1.0
those found in Europe or the US. But
1.2
companies have to be careful to use the
right channel in the right region, as prefer-
ences differ widely. The Internet is cer- Mega Tier-1 Tier-2 Tier-3
tainly a big medium in China, but access in
remote provinces can be poor.
It's income, not Spending per trip (RMB)
geography 3,364 3,859 3,516 3,781
One might expect to find most families
living under one roof outside the large
cities and in the more remote provinces.
However, this is not the case. In fact,
income is the defining component for
Mega Tier-1 Tier-2 Tier-3
demographic factors such as household
size and number of children.
Traditionally, families in China are Length of trip
closer-knit than in the West, with many 4.7 4.5 4.5
older parents living with their grown-up 4.3
children and grandchildren under one roof.
But the higher the income, the less likely
such an arrangement is. Several reasons
for this are possible: Mega Tier-1 Tier-2 Tier-3

 Higher income makes it easier to rent
more than one apartment
 Young high-flyers may delay or forgo
having a family
 Many Chinese aspire to Western-style
family arrangements
Geography, on the other hand, has a
markedly weaker effect on the number
of people living in one household. Those
parts of Northwest China which are still
least touched by the economic and social
development of the past 30 years have an
average of fever than three persons per
household, whilst some more affluent and
developed provinces such as Guangdong,
Fujian or Hebei show an average of 3.4
persons per household. One must also
distinguish between the general tendency
in cities to live in smaller households and
specific tendencies in the different
provinces.
What does this teach us? Easy assump-
tions often fail to reflect the reality of
demographics in China. To understand the
market, you need to look closely at your
potential customer base.
Study 19
Fashion sells everywhere
We asked people whether they had a good Figure 12
knowledge of what was fashionable and Persons per household according to
what was not. Surprisingly, the number of income (RMB/year)
people saying they did was similar in the 3.3 3.2 3.1 3.1 3.1
different types of cities and across provin- 3.0
ces (figures 13 & 14).
This widespread regard for fashion is
somewhat puzzling. Consumption behavior
and cultural environments differ great- <5,000 5,000- 50,000- 100,000- 150,000- >250,000
49,999 99,999 150,000 250,000
ly from Shanghai to Sichuan. However,
modern media are able to penetrate all
areas of the country, bringing the same
ideas about style and fashionableness to Number of children according to income
all sorts of different consumer groups. This (RMB/year)
is clearly having an impact. 1.4
1.2
Contrary to what one might expect, peo- 1.0 1.0 1.0 1.0
ple in the four richest provinces consider
themselves to be less fashionable than
those in provinces such as Tianjin or Anhui.
And the picture is even more complicated <5,000 5,000- 50,000- 100,000- 150,000- >250,000
49,999 99,999 150,000 250,000
when it comes to price sensibility: Some
areas show up as both price- and fashion-
conscious, with respondents claiming to
be more concerned about price than brand.
When it comes to fashion items of any Figure 13
kind, intensive research into local markets I have a good knowledge of what is
is needed to find the right mix of pricing fashionable and what is not
and branding.
67% 67% 67%
Here, as with demographics, China is 65%
good for some surprises.
Mega Tier-1 Tier-2 Tier-3
Roland Berger Strategy Consultants

Welcoming the West

Although China has an ancient culture of Figure 14
its own, its people are open to Western Consumers everywhere claim a good
culture such as classical music, literature knowledge of fashion
and painting.

This interest is evenly spread across the

eastern provinces. Only in the remote
areas of Western China is it found for
under 60% of people.

Regardless of city tier, roughly 63% of

respondents claim to enjoy Western
culture, with Beijing at around 75%.
Unsurprisingly, it is the young who are
most interested in all things Western. This 60% <...< 70%
is probably connected with their use of the 70% <...< 80%
Internet, which is a great spreader of influ-
ence and ideas. I have a good knowledge of what is
fashionable and what is not
With the right marketing strategy, Western (agree to some extent or strongly agree)
brands have a good chance of capturing
the Chinese imagination, especially in the
critical younger and affluent markets. But
even the average Chinese shows some
interest in things Western. Deng's policy
of opening up the country has affected all Figure 15
provinces and the new influences have had Western culture appeals to
a lasting effect. It stands to reason that in consumers of all regions
time, even the people of the northern and
western provinces will reach the level of 67% 63% 64%
62%
interest in Western culture professed by
those in the south and east.

Mega Tier-1 Tier-2 Tier-3

I enjoy Western culture, including

Western classical music, literature
and painting
(agree to some extent or strongly
agree)
 Study 21

3 Know your archetypes

In the previous two sections we described
China's customer base and presented
some surprising insights culled from our
research. The question now is: What do you
do with this information? How do you know
if your strategy in China is correct and your
customer fit accurate?

This is where the RB Profiler can help. We

have already seen how it facilitates the
development of value-based marketing
strategies. In this section we present the
different archetypes used to define custo-
mer bases and show how this helps with
actual cases.

To segment the market into useful sec-

tions, we have defined eight archetypes or
types of consumer. Together, these arche-
types cover most of the spectrum.

The eight archetypes allow you to define a

customized brand and marketing strategy.
However, in China strong regional diffe-
rences in consumer attitudes also have
to be taken into consideration. We outline
these differences below.
Roland Berger Strategy Consultants

Figure 16
Eight archetypes
The percentage figure denotes the
proportion of respondents in each
category. BLUE areas are more
important to the consumer type, RED
areas less important (compared to
the average/population) and WHITE
areas neutral.
Conformists Traditionalists

E The Conformist E The Traditionalist

Prestige Thrill & Prestige Thrill &
Entertainment Entertainment
Fair
Vitality (7.9%) Fair
Vitality (9.4%)
Nature Classic Carefree Conformists like to live a quiet life, Nature Classic Carefree Traditionalists place great impor-
Tranquil Clanning Cool&
have a clear sense of what they see Tranquil Clanning Cool&
tance on sharing their life with
Purism Trendyy Purism Trendyy
as value for money and adhere to family and friends, pursuing their
– Security + social rules and conventions. They – Security + long-term goals in a quiet, steady
Service Service
Innovation Innovation
& Protech care a lot about the environment & Protech fashion. Although usually to be
Smart Quality Smart Quality
Shopping Personal and little about fashion. Conformists Shopping Personal found in the middle-income range,
Efficiency Efficiency
Proven tend to be older and female. Proven they are not particularly price-sensi-
Total Cost Total Cost tive, preferring quality and timeless
Customized Customized
R R products to a cheaper alternatives.

Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100

8 7

Progressive maximalists Modern performers

E The Progressive E The Modern Performer

Prestige Thrill & Prestige Thrill &
Entertainment Entertainment
Fair
Vitality Maximalist (11.1%) Fair
Vitality (11.5%)
Nature Classic Carefree Usually at home in the wealthiest Nature Classic Carefree A more serious type, Modern
Tranquil Clanning Cool&
consumer segment, Progressive Tranquil Clanning Cool&
Performers ask for nothing less than
Purism Trendyy Purism Trendyy
Maximalists are ruthless rule break- the highest possible quality, both
– Security + ers, determined to reach their goal, – Security + in their own performance and in the
Service Service
Innovation Innovation
& Protech unconcerned about either cost or & Protech products and services they buy.
Smart Quality Smart Quality
Shopping Personal environmental issues. Extroverts Shopping Personal They are prepared to pay more if
Efficiency Efficiency
Proven
who like to show their success, Proven
this will get them what they require.
Total Cost these consumers are still quite Total Cost Fun and fancy trends are low on
Customized Customized
R young (34 years old on average) R their list of priorities.
and mostly male.
Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100

6 5
 Study 23

Hedonists Minimalists

E The Hedonist E The Minimalist

Prestige Thrill & Prestige Thrill &
Entertainment Entertainment
Fair
Vitality (15.11%) Fair
Vitality (11.8%)
Nature Classic Carefree Unsurprisingly, Hedonists are driven Nature Classic Carefree Mostly female (57%), Minimalists
Tranquil Clanning Cool&
by pleasure. Having fun is high on Tranquil Clanning Cool&
are careful people who avoid risk
Purism Trendyy Purism Trendyy
their list of priorities and they gladly and do not care about new technol-
– Security + accept cheaper products and ser- – Security + ogy or aggressive career goals. They
Service Service
Innovation Innovation
& Protech vices as long as they are new and & Protech seek out the best price/quality ratio
Smart Quality Smart Quality
Shopping Personal trendy. They care little about the Shopping Personal products and only buy what they
Efficiency Efficiency
Proven social impact of their actions, Proven really need. Peace, privacy and
Total Cost usually have a mid-range income. Total Cost purity rank high on their scale of
Customized Customized
R R values.

Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100

2 4

Traditionalist maximalists Self-centered

E The Traditional Maximalist E The Self-centered

Prestige Thrill & Prestige Thrill &
Entertainment Entertainment
Fair
Vitality (12.0%) Fair
Vitality (21.3%)
Nature Classic Carefree Combining a traditional mindset Nature Classic Carefree Easily the largest consumer seg-
Tranquil Clanning Cool&
with maximalist consumption Tranquil Clanning Cool&
ment, this type of consumer is on
Purism Trendyy Purism Trendyy
behavior, this consumer segment average 37 years old, rejects tradi-
– Security + is very young (30 years old on – Security + tional values and is an early adopt-
Service Service
Innovation Innovation
& Protech average) and despite their relatively & Protech er. More egocentric but also more
Smart Quality Smart Quality
Shopping Personal low income, cost is not a major Shopping Personal eccentric than the average, they
Efficiency Efficiency
Proven
factor for them. Their buying Proven
care little about the environment or
Total Cost decisions are strongly influenced Total Cost ethical issues, have a higher income
Customized Customized
R by their values but they still like to R than most and are prone to unusual
show their status and have fun. or provocative behavior.
Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100

3 1
 Roland Berger Strategy Consultants

Don't forget the regions

Our eight archetypes cannot be applied Figure 17
to the Chinese market in a meaningful Value-profiles in selected Chinese provinces:
way unless the regional differences of dark = more modern
the country are taken into consideration.
Average consumer preferences vary widely
from province to province. As China contin-
ues to develop, these regional differences
can be expected to widen.

Figure 17 shows a selection of profiles for

different provinces. Note how different the
preferences can be in different geographi-
cal locations.

Chongqing Heilongjiang
Shanxi

Guangdong
Sichuan Jilin
Beijing

Henan
Yunnan Liaoning

Guangxi Shanxi
Hubei Jiangxi
Shanxi
Population: 35 million, average income: RMB 21,000 p.a.
The people of this province are very traditional, showing a high concern for the
Shanghai
environment and placing less importance on innovation and fashion. Grounded
Hunan
in a strong ethical framework, Shanxi people have a similar, but softer, profile
compared to other northern provinces. Zhejiang

Guangdong Fujian

Guangdong
Population: 93 million, average income: RMB 43,000 p.a.
A thoroughly modern mindset prevails in this province. Entertainment,
innovation and improving personal efficiency are high on the list of values.
Even though this is a rich province, people are highly cost-sensitive, attaching
less importance to quality.
 Study 25

Choosing the right channels for each

Hebei Tianjin province is critical for an optimized sales
Hebei Tianjin strategy. A thorough analysis of regional
preferences, differences between city tiers
and consumer archetypes prevalent in a
Beijing Shandong
given region is essential to achieve a
Beijing
Beijing Shandong successful marketing strategy.
Population 16 million, average income: RMB 46,000 p.a.
Shaanxihave a modern profile, similar to Shanghai and Guangdong.
Beijing residents Jiangsu The It helps to view some consumer prefer-
Shaanxi Jiangsu
capital is home to many Hedonist and Self-centered types, making the province in ences as being defined by city tier
general a good target for customized and luxury products. and others by region. Figure 18 gives an
Henan Anhui idea of how the preferences might be split.
Henan Anhui

Henan
Population: 94 million, average income: RMB 23,000 p.a.
People from the Henan province tend to be traditional rather than modern and
have little interest in the latest technologies and trends. Environmental con-
cerns and a strong set of values complement this rather neutral profile.

Figure 18

City-tier indicator Regional indicator

 
Credit card use  Clothes shopping
 
Frequency of travel  
Restaurant selection
 
Day-to-day expenses  Desire for security
 Roland Berger Strategy Consultants

The RB Profiler in action

Figure 19 To illustrate how the RB Profiler works,
ABC
ABC's current brand positioning let's look at a sample case built around a
national beer manufacturer, which we will
E
Prestige Thrill & call ABC.
Fair Entertainment
Vitality
Nature Classic Carefree
Beer consumers in China are interested
Tranquil Clanning Cool&
Purism Trendyy in entertainment, want to be seen as cool
– Security + and trendy and often feel freer than the
Service
Innovation
& Protech average consumer. They value innovation
Smart Quality
Shopping Personal
Efficiency and see themselves as modern. Not the
Proven
Total Cost
Customized
quiet type, they like to live life to the full.
R
Chinese beer manufacturers often lack
1) n = 213 vs. n = 5,859
clear target customers and need to
improve their brand image in order to grow.
1

Figure 20 This also applies to company ABC, which

Joint space analysis for selected has never managed to build a strong brand
beer brands in China.
Following the analysis, beer manufacturer
TRA Using the RB Profiler, we are able to ABC was advised to reshape its brand
MPE
H analyze ABC's branding position more image so as to meet the preferences of
TMX CON closely. The result, shown in figure 19, the identified target group, Traditional
F ABC Company reveals a typical weak brand with no Maximalists. These are consumers who:
TRA clearly defined customer base.
MPE PMX
A
G
 Like to hang out with family and
B MIN
HD
E
We now need to find out where in the friends
C I market ABC should move to attract new  Have relatively low income
X SCF HED

Consumer/ target groups; size of circle = size of Archetype

CON customers. In order to do this, we execute  Like shopping for fashion items and
a joint space analysis. Figure 20 shows the latest technical gadgets
F ABC
= BrandCompany
Brands
profiles
that ABC's most likely customers are to  Make buying decisions that are
TRA
= Archetypes, size of bubble
PE represents segment size; see be found in the Traditional Maximalist strongly influenced by values
HA figure 16 (e.g. CON = Conformist) segment of the market, where apart from  Are young (30 years old on average)
2

brand F there is no competition.

X G CON
B
ABC Company MIN
E
D
G
C I MIN
E
SCF HED
I
mer/ target groups;HED
size of circle = size of Archetype
SCF

oups; size of circle = size of Archetype


Next, a TV advertisement was created,
featuring young people enjoying
themselves at a rock concert holding
bottles of ABC beer. The ad was geared
toward a young audience and comple-
mented by a print and radio campaign
featuring testimonials by the rock star
seen in the ad.
Study 27
The branding effort focused on the status
and values embodied by the beer. This
needed to be strongly communicated in
all the media used. The label on the bottle
made it clear that the beer had been
brewed with pure spring water and without
additives, reflecting the target customer
group's appreciation of traditional values.
Roland Berger Strategy Consultants
4 Sample Industries: The cosmetics market
The use of cosmetics and skin care prod-
ucts is relatively new in China – a phenom-
enon that largely coincides with the open-
ing up of the Chinese economy. Growth has
been breathtaking − 15% per annum over
the last ten years − reflecting a rise in dis-
posable income and a willingness to spend
on beauty products. With such opportunity
comes intense competition: The market is
inundated with brands of every conceiv-
able hue, from Chinese brands to brands
from Japan, Korea and the West, all vying
for a slice of the RMB 75 billion market.
Unlocking this market requires excellence
in three areas:
1. 
Product innovation
2. 
Route-to-market
3. Brand image-building
In this section, we examine the latter two
areas in detail.
Monthly Modern
income Retail
Under RMB 3,000 75%
RMB 3,000-4,999 28%
Over RMB 10,000 17%
Choose the right channel ...
Chinese consumers face a wide variety of
channel choices when it comes to shop-
ping for beauty products, from corner phar-
macies to luxury department stores. The
rise of so-called "modern retail" − super-
markets and hypermarkets − is an oft-
cited development. However, aside from
hair care products, these retail newcomers
play second fiddle to department stores,
especially for mid- to high-end
skin care products.
Two important factors underpin the rise of
cosmetic sales: consumers' need for ser-
vice and the match between products and
channel. After all, it is difficult to sell a RMB
300 jar of face cream amid a sea of special
offers or in an environment dominated by
diapers and detergents.
Department Specialized
Stores shop
24% 20%
47% 64%
54% 50%
Modern retail, needless to say, is a
significant channel for hair care products.
It is also the channel of preference for
lower-income consumers. Particularly
relevant in tier-3 or smaller cities, such
outlets – especially hypermarkets – are
de facto department stores, exhibiting
similar traffic patterns and consumer
perception.
The shift toward modern retail is somewhat
inevitable according to many industry
veterans, even for mid-level products. The
real issue is: What products can unlock the
spending potential for cosmetics and skin
care products in this environment? At what
price point? Within which sub-category?
Companies that are mindful of the product/
channel match and systematically explore
opportunities along this axis will likely tap
into a significant stream of growth in the
coming years.

Good research and dedication to Chinese needs lie
at the heart of success in this market
L'Oréal China CEO Paolo Gasparrini
Ignatius Tong, Partner in the Roland
Berger Shanghai office, talked to L'Oréal
China CEO Paolo Gasparrini in the Greater
China headquarters in Shanghai about the
company's success in China.1
I.T.: Tell us about L'Oréal's beginnings in
China.
P.G.: We started in 1996/97. Our first task
was to create a Chinese name: "Ou lai ya".
At the time we were only allowed to do PR,
no business as such. We spent the first
year explaining to people who we were and
what we were about. In 1996 we acquired
Maybelline and discovered they already
had a plant in Suzhou. Eventually we man-
aged to receive a trading license and now
we have 16 brands in the country.
I.T.: In your opinion, what is the key for
converting Chinese customers to Western
products?
P.G.: It's certainly a challenge. The Chinese
consider themselves to be very different,
not only culturally but also physically.
Their hair, their skin − they're different
from what we know in the West. It was a
big challenge for us to show the Chinese
that we are confident in what we're doing.
Before we came to China we had already
spent a lot of time in Paris on trial runs,
trying to understand the Chinese custom-
ers, their culture and traditions. So we
weren't unprepared. A couple of years ago
we bought Yue Sai. Now nobody doubts
our capacity to produce products for the
Chinese. We're performing especially well
with products specific to the Asian market,
such as whitening products.
I.T.: How did you accelerate L'Oréal's
growth in the past few years? And how do
you manage to keep the success going?
P.G.: The success of our brand and prod-
ucts is first of all based on research. We
consider our products to be high-tech; if
we cannot perform better than the com-
petition, we don't launch the product. We
have 3,000 scientists working in Paris. In
China we have local R&D to develop new
formulas. For example, the Yue Sai prod-
ucts are developed entirely in China. When
we launched "Empower" for YS it was a
fantastic success. There is also collabora-
tion between the Paris laboratories and our
local R&D. Approval by the latter is one rea-
son for our success. Chinese women thus
have the advantage of using a global brand
that's been formulated to suit their needs.
Study 29
I.T.: Mininurse, like Yue Sai, is a Chinese
brand developed by a Chinese entrepre-
neur, purchased and transformed by
L'Oréal. In your opinion, how can Chinese
brands reach out beyond their borders in
the future?
P.G.: As was the case with Yue Sai, Chinese
brands often have very interesting exper-
tise and market knowledge, but lack the
funds and tools to develop further. This
is where L'Oréal comes in. We guarantee
development, new brands, new formulas.
It's a fantastic opportunity for consumers
who like to use Western brands but want
to stay true to their own cultures. There
are also many Chinese living overseas who
want to use brands that allow them to
follow beauty trends regardless of loca-
tion. This principle is very successful.
I.T.: How has the financial crisis of the past
months impacted your business?
P.G.: As far as I'm concerned, there is no
crisis. Foreign financial difficulties are
being felt in China, but the government is
reacting very well. It is promoting internal
consumption to prevent a possible crisis
in the country. And though there might
be challenging times ahead for Chinese
exports, the internal market is very under-
developed. Huge reserves of consumption
can still be activated. We feel very positive.
1
For detailed information on L'Oréal,
see page 44
Roland Berger Strategy Consultants

... and then support it at

each point Figure 21
Consumer choices in any given channel Dabao: A Chinese brand with a distinctive profile1)
Cherry
can easily be sabotaged by a lack of Dabao
execution at the point of sale. It is difficult E
to recover any trust lost as a result of Prestige Thrill &
Entertainment
Fair
Vitality
such failure. So it's not enough simply to Classic
Nature Carefree
be present in a particular channel: success Tranquil Clanning Cool&
Purism
requires consistent excellence from Trendyy
– Security +
product inception right through to product Service
Innovation
& Protech
sale. This is no easy feat. Smart Quality
Shopping Personal
Efficiency
Proven
Consumers expect a high level of service Total Cost
Customized
and have certain requirements when it R
comes to cosmetic and skin care products. 1) n = 1,419 vs. n = 9,682 Sample Dabao product
Training for frontline sales personnel is
important. The wide variety of products
and constant innovation complicate this. Figure 22
There's also a seemingly inevitable high Olay: Successful despite a weak brand profile1)
Olay
employee turnover rate in this industry. Olay
Companies have to seek solutions beyond E
the traditional high pay/high turnover
trade-off.

Distributors can substantially impact field

– +
performance. Many distributors in China
play a role beyond that of mere last-mile
logistics cash collection, warehousing,
bundling, HR management, etc. The start-
ing point for a successful brand/distributor R
relationship must be to keep the distribu- 1) n = 1,127 vs. n = 9,974 Sample Olay product

tors' role clearly defined.

Figure 23
L'Oréal: A Western brand with a distinctive profile1)
Toyota
L'Oréal
E
Prestige Thrill &
Fair Entertainment
Vitality
Nature Classic Carefree
Tranquil Clanning Cool&
Purism Trendyy
– Security +
Service
Innovation
& Protech
Smart Quality
Shopping Personal
Efficiency
Proven
Total Cost
Customized
R
1) n = 421 vs. n = 10,680 Sample L'Oréal product
 Study 31

Key areas to focus on are:

 Ensuring distributors' compensation

is in line with their roles
 Establishing clear geographical regions
for different distributors
 Focusing not just on sales, but other
areas too (such as POS)
 Having an ordering mechanism that
avoids "loading"
 Installing an expense reimbursement
mechanism that preserves field
flexibility whilst minimizing "gray"
money

Distributor margins are high. Cutting out

the distributor can mean better control of
the points of sale and stronger relation-
ships with customers. But don't underes-
timate the risks and costs of going direct,
especially if your product portfolio skews
toward mid- to high-end cosmetics and
skin care products. In particular, going
direct means: The beauty sector exhibits substantial field capability and product portfolio with
channel complexity along product lines, the channel and consumer requirements
 Credit terms with retailers must be geography, channel choice and service of each sub-segment. In China, such capa-
renegotiated models. The market must be addressed bility, once internalized, will form the foun-
 Additional headcount has to be not as a whole, but at a segmented level. dation for a successful franchise.
absorbed In other words, companies must align their
 Returns and bad goods have to
be dealt with
 The RDC footprint will be visible
Roland Berger Strategy Consultants
WHO'S BUYING?
The skin care market in China is extremely
fragmented. Local brands such as Dabao
are increasingly coming under pressure
from international brands such as Olay
and L'Oréal.
Analyzing these players with the
RB Profiler produces some interesting
results. Dabao has a clear brand profile,
whereas Olay's strength in the market can-
not be attributed to a clear brand image.
This weakness is partly because the Olay
brand stretches across a vast price spec-
trum – which also goes some way toward
explaining the brand's success.
The Dabao profile (figure 21) shows a
reflection of traditional values, tranquil-
ity and security. It does not represent a
trendy, progressive lifestyle but rather
a calmer, practical approach. As such, it
appeals to a large segment of the popula-
tion, particularly in tier-3 cities, while it
struggles in the tier-1 cities.
Olay's profile (figure 22) is much less well
defined. At best, it stands for technical
innovation and tried and tested products.
The lack of a distinct image makes Olay's
success in China all the more remarkable,
although P&G's effective field sales orga-
nization and consistent investment in IT
technology no doubt play a role.
L'Oréal, another successful foreign
player, has a strong image as a stylish
and innovative brand. Perceived as trendy
and exciting, L'Oréal products appeal
to the Progressive Maximalist and
Traditionalist archetypes, who are less
concerned with price.
Most brands have not yet succeeded in
establishing a clear brand image. They
may well suffer as the market becomes
more competitive and consolidated.
Skin care products are generally targeted
at Maximalists, and competition for such
consumers is fierce. This applies particu-
larly to foreign brands, which appeal more
to Maximalists than traditional consumers.
Despite the current economic downturn,
the Chinese beauty product sector is likely
to continue growing, albeit at a slower pace
than in recent years. Among high-income
residents of tier-1 and tier-2 cities, cos-
metics and skin care products are increas-
ingly seen as a necessity or affordable
luxury compared to, say, cars or jewelry.
Among the broader consumer base in the
tier-3 cities, the adoption rate is high, while
consumption intensity remains low. This
creates a fantastic growth opportunity for
companies. The key to capturing a slice
of this vast market is finding the right
combination of product, value, channel
and service.

5 SAMPLE INDUSTRIES: THE AUTOMOTIVE INDUSTRY
Three facts summarize the Chinese
automotive industry:
 
Only 1.5% of Chinese people own a
private car. However, if trends con-
tinue there could soon be 100 million
vehicles on Chinese roads
 
China currently has over 100 different
automakers
 
A 25% tariff is paid on all cars imported
into the country
Clearly, the Chinese car market is still in its
infancy. This makes it an extremely inter-
esting market for manufacturers. In times
of crisis for automakers everywhere, the
Chinese market looks like it might be the
light at the end of the tunnel.
However, the environmental impact of
exponential growth in car ownership is also
an important issue, especially given finite
fossil fuel reserves. Some analysts think
that this could cause China to become a
leader in green auto technology, or at least
in green auto consumption – an unlikely
assertion given Chinese car owners' cur-
rent preferences. Certainly for now, the
priority lies with reducing dependency on
imported fuels, and reducing emissions is
a secondary consideration.
The German automaker Volkswagen leads
the Chinese market, with a 19% market
share (figure 24). This includes sales by
VW's two joint ventures in China (SVW and
FAW-VW) plus imports. The only Chinese
make in the top five is Chery, in fifth posi-
tion.
Typical customers for cars in China are
people who enjoy an above-average
income. They are reaping the fruits of
China's opening up to market forces.
Study 33
These consumers tend to be Progressive
and Traditional Maximalist types who can Figure 24
afford to own a private car. VW is the clear market leader in China
Market shares
Foreign cars carry the most kudos,
with German luxury automakers leading
the pack. Overall, Audi enjoys the big-
Volkswagen 19%
gest share of the luxury car market. The
Other brands 31%
Mercedes S-class has the highest share of
the top-end of the market, with the BMW Honda 11%
7 series and Audi A8 close behind. Around
1,000 S-classes are imported into China FAW 2%
each month; these are then sold at a very Dongfeng 3%
Tianjin 3% GM 10%
high price that includes the 25% import Toyota 4%
Hyundai 7%
tariff. Ford 5%
Chery 6%
OVERCOMING THE BARRIERS
Foreign OEMs are trying to establish
manufacturing bases in China. This would
enable them to avoid import duties and Volkswagen Santana
give them a local foothold in the market
once it really takes off. There are obstacles
to be overcome, however.
The only way for foreign automakers to
manufacture in China is via a joint venture,
in which they may hold a maximum share
of 50%. This policy aims to enable technol-
ogy and know-how transfer from foreign
manufacturers to Chinese companies
without giving foreign manufacturers an Chery
independent foothold in China.
Examples are the Shanghai Automotive
Industry Corp (SAIC), which has JVs with
GM (Shanghai-GM) and VW (Shanghai-VW).
SAIC also produces its own brand of cars,
using the valuable knowledge gained from
its JVs with GM and VW. However, so far
this strategy has not been successful for
SAIC's own vehicles.
Roland Berger Strategy Consultants

Companies that have overcome these bar-

riers, patiently building up their business Figure 25
in China, are slowly reaping the rewards. Little brand differentiation between car manufacturers
Market leader VW was the first to enter into Volkswagen General Motors
a JV with SAIC in 1985. Audi, part of the VW Volkswagen 161 vs. 1667 GM 82 vs. 746
group, is now a player in the top league E E
of the premium segment. It is able to rely Prestige Thrill & Prestige Thrill &
Fair Entertainment Fair Entertainment
Vitality Vitality
on a strong base of local suppliers, which Classic Classic
Nature Carefree Nature Carefree
makes it easier for it to adapt its products Tranquil Clanning Cool& Tranquil Clanning Cool&
Purism Trendyy Purism Trendyy
for the Chinese market.
– Security + – Security +
Service Service
Innovation Innovation
& Protech & Protech
Adapting models for the Chinese market Smart
Shopping
Quality Smart
Shopping
Quality
Personal Personal
often means providing a long wheel base Efficiency Efficiency
Proven Proven
Total Cost Total Cost
(not only for top-end makes but also for Customized Customized

the VW Passat Lingyu, for example, devel- R R

oped in China for China) or offering a beige

interior. The Chinese love of technological
gadgets is apparent in local preferences
Cherry Hyundai
for Bluetooth connectivity, DVD players Chery 46 vs. 782 Hyundai 59 vs. 769
and built-in refrigerators. E E
Prestige Thrill & Prestige Thrill &
Fair Entertainment Fair Entertainment
Vitality Vitality
These preferences are naturally those of Classic Classic
Nature Carefree Nature Carefree
people with more money than average. It Tranquil Clanning Tranquil Clanning
Cool& Cool&
Purism Purism
remains difficult to tell what the average Trendyy Trendyy
– Security + – Security +
Chinese person will want from his or her Service
Innovation
Service
Innovation
& Protech & Protech
car. Some local manufacturers such as BYD Smart Quality Smart Quality
Shopping Personal Shopping Personal
(Build Your Dream) are copying various Efficiency Efficiency
Proven Proven
parts from Western makes and combining Total Cost Total Cost
Customized Customized
them in new models. If this is an indication R R
of Chinese taste in cars, Western compa-
nies clearly still have a lot to learn.
Honda Toyota
More recently, Chinese OEMs have shown Honda 91 vs. 737 Toyota 32 vs.796
that they are capable of considerable E E
innovative capability. Besides building Prestige Thrill &
Entertainment
Prestige Thrill &
Entertainment
Fair Fair
Vitality Vitality
eccentric cars, BYD is the world's largest Classic Classic
Nature Carefree Nature Carefree
battery manufacturer. It has launched sev- Tranquil Clanning Tranquil Clanning
Cool& Cool&
Purism Purism
eral electric vehicles, putting it ahead of its Trendyy Trendyy
– Security + – Security +
foreign rivals should this really turn out to Service
Innovation
Service
Innovation
& Protech & Protech
be the future of transportation. Smart Quality Smart Quality
Shopping Personal Shopping Personal
Efficiency Efficiency
Proven Proven
Total Cost Total Cost
Customized Customized
R R

n = 11,100
Source: Roland Berger Strategy Consultants, 2008

WEAK BRANDS
In China, most OEMs differentiate their
brand image through sub-brands or prod-
uct-line brands rather than an overall com-
pany brand. Few major companies have
managed to establish a distinctive brand
identity. Even Volkswagen, far and away
the market leader, is no exception here.
Figure 25 gives profiles of the six major
brands in the country.
Looking at the brands in detail, it is clear
that most OEMs have diversified their
customer base by means of various sub-
brands and product-line brands.
Volkswagen
Volkswagen drivers are less cost-sensitive
than average, less concerned about being
trendy, and somewhat traditional. Even
these characteristics are only tendencies,
however: the profile picture is too weak to
make firm statements. Probably by virtue
of being the first foreign automaker to
enter China, VW has been able to establish
its position as market leader.
An analysis of the VW customer base
shows that Progressive Maximalists
and Traditionalists are most strongly
attracted to the brand, followed by Modern
Performers and Self-centered types. This
reflects the market leadership of the
brand. VW appeals least to Conservatives
and Minimalists.
General Motors
GM is not clearly differentiated from other
brands. However, the company makes a
success of its umbrella brand strategy and
manages to achieve some brand differen-
tiation through its sub-brands of Chevrolet,
Buick and Cadillac.
Most of GM's customers in China are
Modern Performers, followed by Self-
centered types. The brand is least
popular with Traditional Maximalists
and Hedonists.
Chery
The only local brand to make it into the
top 5, Chery also suffers from a weak
brand profile.
Chery is a national brand and as such
might be expected to benefit from some
local pride. However, its brand image is
no stronger than those of the other auto-
makers analyzed. There may be a very
slight tendency toward buying proven
Study 35
products and a relaxed attitude toward
innovation and technology apparent in
Chery customers, but it is hardly strong
enough to warrant any bold statements.
The biggest consumer group interested
in Chery are Progressive Maximalists,
followed by Modern Performers. The
brand appeals least to Conformists and
Minimalists.
Unsurprisingly, it turns out that all auto
brands show a clear tendency toward the
Progressive archetypes. These consumers
are high earners and more open to new
ideas, technological advance and progress
in general.
When it comes to branding, OEMs are still
pursuing a strategy of sub-brand identity
diversification. They are relatively weak
in terms of building their overall company
brand.
The strongest automakers have a slightly
clearer positioning than the others. This
fact suggests that as the Chinese market
develops, strong branding will be the key
to gaining a solid foothold in this vast and
tricky market.
Roland Berger Strategy Consultants
In China, consumers achieve differentiation –
via brand and type of car
Beijing Benz Daimler-Chrysler (BBDC) President and CEO
Günter Butschek
Roland Berger Senior Consultant Benjamin
Thoma talked to Beijing Benz Daimler-
Chrysler (BBDC) President and CEO Günter
Butschek about the Chinese car market.1
B.T.: What do you think is the biggest dif-
ference between Western and Chinese car
consumers?
G.B.: In the West, individualization is impor-
tant. Western consumers act according
to the pull principle. In China, on the other
hand, consumers achieve differentiation
via brand and type of car.
B.T.: Is there a perceptible evolution in con-
sumer behaviour? If so, how?
G.B.: Chinese consumers are certainly
extremely knowledgeable about what they
are buying and expect a lot of technical
information about their car. There is no
brand loyalty at present. In the past, con-
sumers simply bought a car; they now also
buy service and entertainment.
B.T.: Is consumer behavior in China
changing?
G.B.: Chinese consumers certainly are
extremely knowledgeable about what they
are buying and expect a lot of technical
information about their car. So far, there
is no brand loyalty. Whilst in the past con-
sumers simply bought a car, they now also
buy service and entertainment.
B.T.: How do you adapt to the evolving
tastes and behavior of your customers?
G.B.: Our new C-class is built entirely in
China and is expected to attract young
customers who want dynamic handling as
well as many comfort and safety features.
We are also preparing to launch the new
E-Class with a long wheel base, in recogni-
tion of the fact that many of our clients
have a driver and therefore sit in the rear
of the vehicle.
B.T.: How does your marketing and brand-
ing strategy in China differ from else-
where?
G.B.: In principle, the image and marketing
mix of the Mercedes-Benz brand in China
is the same as in our global campaigns.
Of course, our marketing programs are
tailored to the Chinese market, but we
communicate the same brand values.
B.T: What channels do you use to commu-
nicate with existing and potential clients?
G.B.: Naturally we use new media, such as
the Internet, especially as Chinese con-
sumers spend a long time looking online
for information about product features and
prices prior to visiting a dealership. We also
make sure our dealers are aware of all the
product features and are ready to answer
technical questions from customers.
B.T.: Has the financial crisis had an impact
on your business already?
G.B.: China is less dependent on other
financial systems, so the impact of the
financial crisis has been much less than in
the West. The stimulus package launched
by the government will have a positive
impact. But the drop in GDP growth from
12% in 2008 to 8% in 2009 is putting us
under a lot of pressure. Q4 2008 was very
volatile for us, with C-Class sales down 25%
in November but gaining ground again in
December.
Competition is getting tougher. Many deal-
ers have had problems securing loans to
finance their showrooms, but new financ-
ing options will emerge.
B.T.: In your opinion, what will be the next
big thing to hit the Chinese automotive
market?
G.B.: Definitely alternative power technolo-
gies. Government subsidies and policies
are supporting this development. There will
also be further growth in the luxury seg-
ment, as well as in the small vehicle seg-
ment with displacements below one liter.
The recently introduced fuel consumption
tax based on displacement has triggered
a general trend toward reduced displace-
ment.
1
For detailed information on BBDC,
see page 45
 Study 37

6 STRAIGHT FROM THE HORSE'S MOUTH

Many analysts feel that traditional market
research can only go so far in exploring the Figure 26
psyche of potential customers. In a survey, Participation in the Internet community in China
respondents might be influenced by the is more active and vibrant than in the West
way that questions are asked or give the United States China
answers that they think are expected of "I have expressed personal opinions and/or writ-
them. 56% 72%
ten about myself online"1)

One way to circumvent these difficulties "Online I feel free to say and do things I wouldn't
32% 73%
is to analyze what consumers have to say do or say offline"1)
when they are outside the survey environ- User-generated content (consumer reviews,
ment. The Internet, especially where user- rating sites, forums, discussion boards, blogs, 19% 58%
etc.) influences purchase decisions2)
created content is concerned, has made
such research much easier. In Bulletin Percentage of broadband users commenting on
28% 47%
Board Systems (BBS), chat rooms and blogs, listserves, in chat rooms and forums2)
blogs, people freely express their opinions 1)
IAC and JWT, China Leads the US in Digital Self-expression, November 2007
and swap experiences about brands, prod- 2)
Netpop, Chinese Surpass Americans in Web 2.0 Use, November 2007
ucts and services in massive numbers.
This phenomenon is called Internet Word
of Mouth (IWOM).

Figure 26 shows the difference in active

Figure 27
Internet use in the United States and
China. Motivation for participating in BBS (%)

Share opinions 72.7

Of special importance to marketers in
China are the highly popular Bulletin Board Seek help 49.8
Systems (BBS). Since their creation in 43.2
Help others
1994, BBS have formed the heart of the
Internet community architecture. More Stay in touch with others 20.3
than 91 million1 Chinese use BBS to dis- Attract others' attention 9.5
cuss topics such as automobiles, sharing
their experiences, suggestions and que- Other 0.6
ries. Figure 27 explains what people use Data basis: 315 valid responses
them for most; figure 28 shows a screen- Source: CIC Efluencer Survey, Q3 2008

shot of a typical BBS site.

Roland Berger Strategy Consultants

The method
Roland Berger asked CIC, China's leading Figure 28
IWOM research and consulting firm, to pro- BBS screenshot
vide insights into the Chinese automotive
industry. CIC does not conduct surveys;
instead, it analyzes the data created by
China's 298 million Internet users, the
largest Internet community in the world.1
Using its proprietary data collection and
text mining technology, the company
derives insights and actionable intel-
ligence from tens of millions of monthly
consumer conversations about a wide
variety of industries, including auto-
motive, cosmetics/beauty and consumer
electronics.
Figure 29
For this study, CIC concentrated on the The CIC Automotive IWOM Practice
automotive industry, tracking 19,471,305 Automotive Industry Term Library
messages in Q4 2008 from automobile-
related BBS. These messages were cat- Industry Coverage
egorized and mined according to a library  81 manufacturers
of terms (including Internet slang) repre-  441 models
senting 441 models, 81 manufacturers,  16 attributes (categories)
16 attributes (categories) and 200 sub-  200 sub-attributes (sub-categories)
attributes (sub-categories) customized for  Product and attribute sentiments
mainland China. Figure 29 gives an idea of
how the system works.
Sample CHARACTERISTICS OF
CIC CHINESE TEXT MINING
  Industry attribute terms:
1
The 23rd Statistical Survey Report on the Internet
Development in China by CNNIC, January 2009 (gearbox):
gearbox
  Exceptional key terms: A4 = A4
(A4 paper)
  Spelling variation: (Sagitar):
Sagitar
  Chinese word segmentation:
(heavy) vs. (important)
  Internet language/slang:
(Focus): FKS FCS
 Study 39

The results
Figure 30 Volkswagen, in its joint-venture incarna-
Most discussed auto attributes, Q4 2008 tions SVW and FAW-VW, was the most
discussed brand in Q4 2008, with a 15.2%
Other "share of voice" (figure 32). SVW had an
Safety systems 10% 8.3% share of voice at brand level, with
Power systems
5% 24% 540,247 posts, and FAW-VW had a 6.9%
Distributors share, with 453,669 posts. Ford Focus was
6% the most discussed model, with 214,416
Transmission posts or 4.1% of the total share of voice at
systems 7%
the model level.
8% 15%
Interior Price Power systems were the most discussed
equipment 8% topic on BBS sites, cropping up in 24% of all
15% posts mentioning specific topics. This was
Exterior equipment
followed by price (15%) and appearance
Appearance
(15%). Such findings provide an under-
standing of what consumers are most
Data basis: Total attribute-related posts, Q4 2008 = 2,323,560
Source: CIC Automotive IWOM Practice concerned about, which can in turn inform
product marketing messages (figure 30).

To help manufacturers understand how

consumers feel about their brands, CIC
Figure 31 also produces an "IWOM Health Matrix."
IWOM profile of models This analyzes a particular make's online
reputation by splitting its online appear-
IWOM Health Matrix for five compact models, Q4 2008 ance into two categories: "buzz volume"
and "sentiment" (figure 31).
High
II Bora
Excelle
STD
NSR
Chery A3 Focus
Sagitar

III
Low
Low Buzz volume High

NSR is as follows: (positive-negative)/(positive+negative) x100%

Data basis: Total model-related posts = 5,210,948

Source: CIC Automotive IWOM Practice
Roland Berger Strategy Consultants

Figure 32 Figure 33
Manufacturer buzz Trends in manufacturer buzz
Top 10 discussed auto manufacturers, Q4 2008 (no. of posts) Buzz for four manufacturers, Q4 2008 (no. of posts)

160,000 SVW
FAW-VW 540,247

SVW 453,669
4S retailer assaulting
SGM 423,600 consumer scandal
130,000
CA Ford 359,479 Launch of new CITY model
CA Ford Mazda
Shenlong 348,514

GZ Honda 311,992
100,000
FAW-Toyota 242,395 GZ Honda
DF Nissan
DF Nissan 223,049

Chery 189,549
70,000
DF Honda 136,662
OCT NOV DEC

Note: Manufacturer posts include brand, series and model posts Data basis: Total posts for four auto manufacturers, Q4 2008 = 1,348,189
Data basis: Total manufacturer-related posts = 6,518,352 Source : CIC Automotive IWOM Practice
Source : CIC Automotive IWOM Practice

Figure 34
Contribution of fuel economy to buzz volume
for five brands, Q4 2008
Quotes
Buick 9.3%
 The fuel consumption of American cars
Ford 9.2% is definitely higher than Japanese ones.

Honda 6.3%
 
American cars are not fuel-efficient.
Toyota 5.3% Even my Sail SRV used 8 l/100 km

VW 4.4%
8
Notes: Only includes domestic models
Data basis: Total number of attribute-related posts, Q4 2008
VW = 51,503; Toyota = 197,185; Honda = 205,943; Ford = 106,904; Buick = 109,281
Source: CIC Automotive IWOM Practice

Looking at recent data trends, we see that
while SVW's discussion curve is stable,
Chang'an Ford Mazda (CA Ford Mazda)
and Guangzhou Honda (GZ Honda) expe-
rienced a sharp rise in discussion around
December 2008 (figure 33). In the case of
CA Ford Mazda, much of the spike can be
attributed to the buzz following a heated
argument and shoving match between a
Ford dealership employee and a group of
customers who had organized themselves
online in order to receive a group purchase
discount (a not unusual practice in China).
The incident was discussed in BBS forums,
recorded and uploaded to video-sharing
sites similar to YouTube, and reported on
by the media. GZ Honda, on the other hand,
generated a buzz with the launch of its
new CITY model in late December.
CIC further investigated perceptions of
fuel economy for different manufacturers
– particularly relevant given the worsen-
ing economic situation (figure 34). Their
analysis shows that 9.3% of all mentions
of the Buick brand or its models refer to
fuel economy, as do 9.2% of all mentions of
Ford or its models. By comparison, Honda
and Toyota are less often mentioned in
association with fuel economy, with 6.3%
and 5.3% of brand or model messages
mentioning the issue respectively. Most of
these mentions are negative, suggesting
that rightly or wrongly, there is a strong
perception that American cars are not
as fuel-efficient as Japanese and other
brands.
Study 41
It is essential for manufacturers to listen communities. Others have set up their own
to the issues being discussed by Internet communities or social networks, including
users. But they also need to understand SVW (mysvw.com) and Honda Fit (ifitclub.
the specific online culture in China. com.cn).
Organizing group purchases is one impor-
tant feature of online automotive commu- By systematically tracking and analyzing
nities. Another is the so-called "homework" IWOM, manufacturers can learn how their
post, in which Internet users request (or brands are perceived by potential custom-
share) detailed experiences with a particu- ers. In particular, they can track consumer
lar car or feature. For example, a potential sentiment and spot any issues that might
buyer may ask community members to have an impact on their reputation. They
give their impressions of driving the SVW can also identify influential communities
Polo. Such discussions from "people like and opinion leaders, and target them with
you and me" can have a very strong impact digital PR. And they can identify trends and
on potential buyers' opinions. interests, both as a source of inspiration
for their own marketing campaigns and
as a way of measuring their subsequent
The implications impact.
Thanks to BBS sites, many Chinese car
buyers have already made up their mind
about which car to buy before they even
enter the showroom. They base their
decisions almost exclusively on IWOM.
New members of the Chinese middle
class are often the first of their friends
or family to buy a car, so they lack any
"offline" word of mouth to help them in
their buying decisions.
It is only natural that car retailers should
want to influence these online discus-
sions. Text mining technology such as that
used by CIC can identify the 20% of BBS
contributors who create 80% of the content
about particular topics or models. These
so-called "efluencers" can serve as the
basis for new kinds of CRM and PR engage-
ment programs. Some retailers have begun
directly engaging within the auto expert
Roland Berger Strategy Consultants

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revenues with 2,100 employees. The strategy consultancy is an independent partnership
exclusively owned by about 180 Partners.

Roland Berger supports leading international corporations, non-profit organizations and

public institutions in all management issues – ranging from strategic alignment and intro-
ducing new business models and processes to organizational structures and IT strategy.
Roland Berger is based on global Competence Centers that are organized along functional
and industry lines. This allows us to offer tailor-made solutions devised by our interdisci-
plinary teams of experts.

At Roland Berger we develop customized, creative strategies together with our clients.
Providing support in the implementation phase is particularly important to us. In so doing,
we create value for our clients. That's why our approach is based on the entrepreneurial
character and individuality of our consultants – "It's character that creates impact." All
employees at Roland Berger Strategy Consultants strive to adhere to our three core
values: excellence, entrepreneurship and partnership.
C. About...

... Roland Berger Strategy Consultants Greater China

The Chinese market is a key pillar of Roland Berger Strategy Consultants' international
expansion. Since our entry into the China market in 1984, the consultancy has grown
rapidly: The four Chinese offices (Shanghai, Beijing, Hong Kong and Taipei) now have over
200 people dedicated to working extensively with leading Chinese and international
companies.

With the motto "Client and quality first," we offer consulting services in fields of indus-
try such as automotive, electronics, telecommunications, consumer goods and retail,
engineered products and high tech, transportation, financial services, chemicals and oil,
building materials, and real estate. Our services are focused mainly on strategic and oper-
ational consulting involving every aspect from M&As, corporate development strategy to
marketing as well as supply chain management.

Currently, Chinese clients account for more than 70% of our total revenue in Greater China.
Through in-depth understanding of the Chinese business environment and dedication to
forward-looking, creative, targeted and practical solutions for clients, Roland Berger has
gained a very strong reputation in the Chinese market. We offer tailor-made solutions
according to the individual needs of each client in response to current Chinese market
development trends.
 Study 43

As the only consulting firm of European origin among the Top 3 in Greater China, Roland
Berger Strategy Consultants has built its expertise on its extensive experience working
with clients worldwide on complex business cases for 40 years. Outstanding strategic
analysis and in-depth knowledge of implementation are the strengths of the company's
consulting approach. Roland Berger consultants combine their analytical and strategic
know-how within a diverse company setting to help clients in Greater China successfully
master their unique challenges.

... CIC
CIC is the leading Internet Word of Mouth (IWOM) research and consulting firm in China.
Since 2004, CIC has pioneered the concept of distilling insight from Chinese blogs,
message boards and social networks with its team of IWOM analysts supported by
proprietary Chinese language-based technology for text mining (patent pending),
data processing and data visualization.

As the only firm in China that helps Fortune 500 retainer clients utilize IWOM for high-
level strategic planning and marketing communication, CIC's continual development and
evolution is driven by a unique, powerful and open mindset and learning culture that at its
core continually seeks to help clients understand how the Internet and IW0M are redefin-
ing the relationship between brands and consumers. CIC is committed to both providing
objective third-party strategic advice to clients and to promoting the healthy develop-
ment of the Internet community in China.

For a comprehensive analysis of what consumers are saying online about the automotive
category, CIC provides customized reports, a powerful dashboard as well as a newly
released syndicated IWOM insight TM Automotive Industry Report. For more information,
please visit www.cicdata.com (CIC website), www.seeisee.com (Chinese blog)
and ww.seeisee.com/sam (English blog).

... Sam Flemming

Sam Flemming is co-founder and CEO of CIC. Sam has been a participant of China's digital
evolution for more than a decade, first with Chinapay.com, the original online payment
platform in China, and now with CIC. CIC is at the forefront of exploring Chinese digital
culture, helping leading brands in China such as Pepsi and Nike understand how IWOM is
impacting and can be used to impact marketing communications, product research and
development, reputation monitoring, and public relations.

Sam holds a Master's degree in Teaching English to Speakers of Other Languages from
Monterey Institute of International Studies in Monterey, CA, and a BA in Sociology and
Religion from Rhodes College in Memphis, TN.

He is a native speaker of English, speaks Mandarin Chinese and has lived in Shanghai
for 10 years.
Roland Berger Strategy Consultants

... L'Oréal Worldwide

L'Oréal, a Fortune 500 company, was founded in 1907 by chemist Eugene Schueller who
invented the first synthetic hair colorant. Over the last hundred years, L'Oréal has devel-
oped from a small home business to the no.1 cosmetic company in the world. Thanks to
its outstanding performance, L'Oréal now ranks among the world's 100 most sustainable
corporations.

With operations in over 130 countries and regions worldwide, the company possesses
63,000 employees and 40 plants. Sales revenues were EUR 17.5 billion in 2008. The
Group is also one of the world's most successful businesses ever, having recently
reported its 18th consecutive year of double-digit growth. L'Oréal markets an impressive
portfolio of more than 25 international brands, sold in 130 countries, including L'Oréal
Paris, L'Oréal Professionnel, Maybelline, Garnier, Redken, Kiehl's, Shu Uemura, Biotherm,
Helena Rubinstein, Lancôme as well as Giorgio Armani and Ralph Lauren perfumes. L'Oréal
is active in all segments of the cosmetics market, including hair care, perfumes, makeup,
skin care and dermatology.

L'Oréal's century-long history is marked by major successes. With its strong R&D capabil-
ity, innovation and pursuit of excellence, L'Oréal offers women new ways and means to
enhance their beauty.

... L'Oréal in China

In 1996, L'Oréal entered the Chinese market. Thanks to its outstanding business perfor-
mance and good citizenship activities during the past 12 years, L'Oréal China is now one
of the most prestigious multinational enterprises in China.

In 2008, L'Oréal China reported its eighth consecutive year of double-digit growth with
sales of RMB 6.95 billion, a 27.7% increase on the previous year. L'Oréal China is among
the top 10 players globally and the biggest player in the Asia-Pacific region.

L'Oréal China markets an impressive portfolio of 16 international brands, including L'Oréal

Paris, Maybelline, Garnier, Kiehl's, Shu Uemura, Biotherm, Lancôme, Helena Rubinstein,
Biotherm, Giorgio Armani, Ralph Lauren perfumes, Kérastase, L'Oréal Professionnel,
Matrix, Vichy, La Roche-Posay and two local brands, Yue Sai and Mininurse. Its high-qual-
ity products are available in all distribution channels, including department stores, hair
salons, hyper- and supermarkets, pharmacies and direct mail order.

L'Oréal has built a Research & Development Center in Shanghai to investigate Chinese
consumers' needs and expectations, and three plants in Shanghai, Suzhou and Yichang
to provide better service and products, not only to China, but to the whole of Asia.
 Study 45

L'Oréal China also emphasizes the recruitment and development of new talent. A new
Management Development Center was founded in 1995 in Shanghai.

L'Oréal China shows its long-term commitment to Chinese society by supporting culture,
education, science, environmental protection and the arts. As a good corporate citizen,
the company is involved in a number of initiatives, such as the China Young Women in
Science Fellowship, Charity Sales, Green Cup and Hairdressers Against Aids. L'Oréal China
has been recognized as the most successful and respected international company in
China.

... BBDC
Established on August 8, 2005, Beijing Benz-Daimler Chrysler Automotive Co., Ltd. (BBDC)
is a joint venture founded by Beijing Automotive Industry Holding Co., Ltd, Daimler AG and
Daimler North East Asia Ltd. The Chinese shareholder owns 50% of the total shares.  

BBDC's new plant is located in the Beijing Economic & Technological Development Area
(BDA) and boasts an annual production capacity of 100,000 units. BBDC's manufacturing
philosophy is based on criteria such as state-of-the-art techniques, outstanding products,
strict quality control, a strong emphasis on sustainable and environmentally friendly pro-
cesses and well-trained technical workers.  
 
BBDC currently produces vehicles such as the world-famous Mercedes-Benz E-Class/
C-Class, Chrysler 300C and Chrysler Borui.  

BBDC has devoted itself to providing high-quality professional services to its customers.
An adequate supply of parts, efficient technical support and long-distance and on-site
training have guaranteed the continuous progress of our First Fix Visit (FFV). The com-
pany continually strives to make its service even faster, more comfortable and customer-
oriented.
 
BBDC's mission statement is "We Enhance Mobility and Quality of Life." Its aim is to
become the top-performing player in the Chinese market. The products and services pro-
vided to its customers are of the same high-quality as those of DAG worldwide. In so doing
BBDC is creating a new epoch for the auto industry and the Chinese market.
Roland Berger Strategy Consultants

D. Contacts
Charles-Edouard Bouée
Regional Coordinator, Asia
President & Managing Partner, Greater China

Roland Berger Strategy Consultants

23rd Floor Kerry Center, 1515 Nanjing West Road
Shanghai 200040, China
E-mail: Charles-Edouard_Bouee@rolandberger.com
Phone: +86 21 5298 6677-821

Qi Wu
Senior Partner & Vice President for Greater China

Roland Berger Strategy Consultants

Suites D&E, 20th Floor, Tower A, Gateway Plaza
18 Xiaguangli, East Third Ring North Road
Beijing  100027, China
E-mail: Qi_Wu@cn.rolandberger.com
Phone: +86 10 8440 0088-619

John Shen
Partner
Automotive Competence Center, Leader Greater China

Roland Berger Strategy Consultants

23rd Floor Kerry Center, 1515 Nanjing West Road
Shanghai 200040, China
E-mail: John_Shen@cn.rolandberger.com
Phone: +86 21 5298 6677-890

Ignatius Tong
Partner
Consumer Goods & Retail Competence Center,
Leader Greater China

Roland Berger Strategy Consultants

23rd Floor Kerry Center, 1515 Nanjing West Road
Shanghai 200040, China
E-mail: Ignatius_Tong@cn.rolandberger.com
Phone: +86 21 5298 6677-850
 Study 47

Rainer Balensiefer
Principal, Head of RB Profiler
Marketing & Sales Competence Center

Roland Berger Strategy Consultants

Karl-Arnold-Platz 1
40474 Düsseldorf, Germany
E-mail: Rainer_Balensiefer@de.rolandberger.com
Phone: +49 211 4389-2158

Susanne Gamers
Senior Consultant
Consumer Goods & Retail Competence Center

Roland Berger Strategy Consultants

23rd Floor Kerry Center, 1515 Nanjing West Road
Shanghai 200040, China
E-mail: Susanne_Gamers@cn.rolandberger.com
Phone: +86 21 5298 6677-142

Please contact us if you have further questions:

Phone: +86-21 5298 6677-176
Fax: +86-21-5298 6655
E-mail: Consumerreport_China@cn.rolandberger.com

think:act STUDY
Publisher: Roland Berger Strategy Consultants
Responsibility: Torsten Oltmanns

Roland Berger Strategy Consultants

23rd Floor Kerry Center, 1515 Nanjing West Road
Shanghai 200040, China
© Roland Berger Strategy Consultants
All rights reserved
Roland Berger Strategy Consultants