U.S.-Asia Business

China’s New Generation Z Consumers

China's increasingly influential "Z-lennials" are forcing an urgent rethink of business strategy.

Most of us have heard of Generation X and Y, but what about the so-called "Z-lennials"? Defined as those born in this millennium or just before, it is estimated that Z-lennials will make up 40 percent of all consumers by 2020. In China, their sheer numbers and free-spending nature make connecting with this contemporary cohort increasingly critical, both for established companies and would-be market entrants.

When it comes to marketing and retailing, Chinese Z-lennials are frequently lumped together with millennials as a young, tech-savvy generation of fast consumers. Yet, it is increasingly necessary to view them as a discreet group with their own unique characteristics. To fully leverage China's booming market, companies of all sizes and backgrounds must understand their habits, tastes, expectations and aspirations.

A privileged generation shaped by China's whirlwind economic development of the last two decades, Z-lennials have a greater sense of individual identity than older cohorts.

"Most of them are only children, meaning they have typically been the center of attention from older generations," says Teresa Lam, vice president of Asia distribution and retail for the Hong Kong-based Fung Business Intelligence Centre (FBIC). "This is reflected in their taste for luxury and generous attitude toward spending."

Compared to previous generations, many Chinese Z-lennials also buy impulsively and are willing to pay more for fast delivery. According to a recent Accenture survey, over a third of the Generation Z consumers questioned said they wanted same-day delivery, while 27 percent said they expected delivery within half a day.

China's Z-lennials are the first Chinese generation to have been born in a fully modern, fully digitized country. They are highly connected and willing to share their feelings through social media. Many have a well-informed worldview, with either a bilingual domestic or overseas education.

"In short, these guys are both technology and convenience-driven and have unprecedentedly high expectations of their shopping experience," says FBIC's Lam. "They use whatever channel best suits their needs, be it online or offline, mobile or social."

Emerging brands opportunity

For Western companies of all sizes, the scale of the Chinese market makes the decision to sell products and services here a compelling one. Yet while there are rich rewards on offer, the challenge of reaching out to Chinese consumers, especially notoriously fickle Z-lennials, can be daunting. From the cost of logistics, to a lack of understanding about consumer behavior, there are myriad barriers to overcome.

"The Chinese market is undoubtedly challenging, especially for smaller businesses," says Matthew Ryan, international vendor success manager at citiesocial, a Taipei-based startup that helps emerging brands break into the Asian e-commerce market. "But there is clearly a real yearning in China and other countries across Asia for new products, so it makes sense for SMEs and startups to make marketing and retailing here a key priority."

Given the desire of Chinese Z-lennials to express their individuality, some SMEs actually find their products flying off the shelves more quickly in China than in North America or Europe. The wallets, jewelry and other accessories of UK-based start-up Vanacci, for example, are now proving a big hit with Chinese Generation Z consumers.

"The fact that we offer unique, high-quality, handmade goods at an affordable price makes our products really appealing to Chinese Z-lennials," says Ryan Ward, Vanacci's sales director. "We can offer our goods with Mandarin or Cantonese branding, but we've seen a demand for products that retain their Western identity."

Many of the perceived concerns that Western SMEs have about the Chinese market and reaching out to Z-lennials are surmountable with the right partners.

"We were apprehensive about marketing in China because the vast majority of our advertising appears on Facebook," says Vanacci's Ward. "This is why we chose to partner with citiesocial. The marketing campaign they ran for us was a huge success and a major step forward for our ability to operate profitably in the country."

Marketing mix

Choosing the right way to market to Z-lennials can be a tricky proposition. This might be one of the most important Chinese consumer groups to connect with going forward, but their needs and preferences can change rapidly.

"Western companies come and go in China," says Mike Vinkenborg, a senior project leader at China-focused consulting firm Daxue Consulting. "One of the main issues for those that don't succeed is that they don't localize their business strategy. You have to understand the local market to engage, especially when it comes to Generation Z, because these guys frequently have little brand loyalty."

China is a mobile-first nation: According to the Fung Business Intelligence Centre, m-commerce accounted for over 80 percent of total Chinese online shopping transactions in 2017. All Western companies seeking to break into the Chinese market should have their own mobile-enabled e-commerce platforms and mobile apps to engage with customers.

Social media is also an integral part of the everyday life of Chinese consumers. Over 90 percent of Chinese internet users have one or more social media accounts. An estimated 70 percent of Gen Z shoppers are willing to purchase products through them, according to a recent report by Accenture.

"Companies looking to engage Chinese Z-lennials should certainly leverage social media platforms such as WeChat and QQ to market and sell their products," says FBIC's Lam. "Live online streaming is a common way for brands and retailers to engage."

Geographical location is another variable that needs to be taken into account when marketing to Chinese Z-lennials.

For those overseas companies promoting and selling high-end products, the majority of potential Generation Z consumers will be concentrated in first-tier Chinese cities such as Shanghai, Beijing, Guangzhou or Shenzhen, as households here have the highest disposable incomes. But companies manufacturing products with higher sales volumes should consider Z-lennial consumers in second-tier cities and lower, which are typically located in the Chinese hinterland.

Yet this coastal/non-coastal dynamic is now changing as a variety of factors come into play. Chinese Z-lennials are used to commuting and now enjoy unprecedented mobility.

"Technology is reducing geographical disparities, with the rapid growth of e-commerce leveling out product accessibility and purchasing," says Jungle Wong, Chief Talent Officer, Human Capital Asia Pacific Regional Leader at Deloitte China. "Jobs and investment opportunities are also increasing in non-coastal cities, while high-speed trains are really transforming the way people work and travel."

Influential connections

Celebrity endorsement has long been a popular way for brands to market their products in China. It has already been proven that Chinese consumers are more likely than Americans to identify with products connected to famous individuals. Yet with Z-lennials craving brands perceived as authentic, original and with a strong brand story, picking the right celebrity is increasingly important.

"Firstly, you need a 'safe' celebrity," says Daxue Consulting's Vinkenborg. "Picking the wrong celebrity can be a total public relations disaster in China, especially if they don't behave in the right way or are perceived as representing the wrong values."

A growing number of companies are now moving away from celebrities and leveraging KOLs (key opinion leaders, or "wanghong" in Mandarin) to promote their brands. This is typically done via online channels such as WeChat or Weibo (a microblogging site very popular with Z-lennials). Their opinions are seen as being more objective and therefore resonate more strongly with discerning Z-lennials. Many wanghong have been educated overseas, speak English well and sport distinctive, highly curated styles that stand out from the crowd.

"A number of international luxury players have recently stepped up their social media efforts using wanghong," says FBIC's Lam. "For example, French fashion brand Chloé started its first WeChat sales campaign in August last year, partnering with popular fashion blogger Mr. Bags to sell limited numbers of special-edition handbags exclusively to his WeChat followers during the Qixi Festival (the Chinese version of Valentine's Day)."

Mr. Bags' WeChat posts regularly hit more than 100,000 views. After he posted an article to promote the Chloé bag, all 85 were sold out within 30 minutes.

Future focus

Going forward, even the engagement of high-profile wanghong may not be enough to influence the purchasing behavior of Z-lennials.

According to a survey conducted last year by the China University Media Union (CUMU), over 40 percent of college students now want to become wanghong themselves after graduation.

"The ongoing drive for individuality, self-expression and authenticity means Chinese Z-lennial consumers are becoming more and more discerning," says Daxue Consulting's Vinkenborg. "We could soon see the strategy of having many ordinary consumers as brand ambassadors generating more sales than endorsement by one or two celebrity singers or bloggers."

Kestrel Lee, Shanghai-based executive creative director for global brand experience agency FreemanXP, believes successful Chinese Z-lennial marketing campaigns will always leverage the unique qualities of the brand to create memorable experiences for consumers. These lead to enhanced media coverage and natural amplification via online sharing, which so strongly defines this generation.

"Marketers should focus their efforts on chasing better customer segmentation and loyalty," says Lee. "Don't obsess over channels and new tech that requires increasingly large marketing budgets."