Last word from the East: The ‘New Normal’

There’s a lot of talk about the ‘new normal’ in China. And with the slowdown now percolating every corner of Chinese life, one is left with a palpable sense that, from consumers, the ‘new normal’ calls for ‘more value’.

There was a time, several years ago amid the double-digit growth era, when the deep frugality of Chineseness almost gave way to financial flippancy. People were so confident of the future that the cost of things was rendered not unimportant, but less relevant. When everything is going up, what matters is what it will be worth, not what it costs now.

With steadily declining GDP growth rates and two severe down-jolts in the Shanghai share market, the value ‘reflex’ is back in the forefront of the Chinese mind. And in the context of the highly anticipated ‘rerise’ of China, it makes for unusual headlines.

In a study of 26 consumer product categories recently published by Bain Consulting, sales value growth among FMCG was shown to drop from 7.4% in 2013 to 5.4% last year. Volume growth, then at 3.8%, was flat last year.

China’s burgeoning car industry – an icon of the rise of the new tastes of the middle class – is now in a distinct cooldown. In the first five months of this year, volume growth was a paltry 2%, the lowest since 2012. Volkswagen, once dubbed the ‘money machine of China’, has seen its volume decline 4% in the first half of this year.

And, as previously reported in this column, luxury is deflated. After experiencing double-digit growth only two years ago, value sales are now in decline. Premiumness, in general, is under attack and this hurts the foreign brands hardest.

Unlike the old generation of ‘workers’, new savvy Chinese are keener to upgrade their lives. And, empowered by technology, they are more shrewd at evaluating their options. For example, a series of tech-based tools are making deal-shopping the new normal. In China, half of all ticket purchases to cinema and other performances are made through apps such as gewara.com, maoyan.com and wepiao.com.

Chinese are travelling like never before, yet you never hear people travelling without first going through low-cost sites such as Ctrip, Travelzoo and Qunar to help ferret out the best deal.

Yet China can still offer foreign brands attractive prospects. While Hershey’s experienced a revenue drop this year, premium competitor Ferrero Rocher is in positive territory. Although more expensive than all but the highend chocolates, Ferrero Rocher offers consumers significant justification with its layered construction and premium packaging. And the strong display characteristics help a lot in supporting the brand’s abilities to be offered as a gift – bridging personal and gifting market opportunities.

In a country obsessed with progress, brands that offer innovation experiences find the going easier. Despite their premium price points, Nike’s Flyknit series of products offering lighter-weight sports shoes have been very well received. As previously reported, Nike has also done a good job of leveraging the obsession with social media to offer WeChat-powered running and other communities. It’s all helped Nike grow 21% vs. 10% at adidas.

And lifestyle brands with strong aesthetics have shown a way forward. Unlike in the West, where IKEA is a cheap brand, in China it is a relatively premium one. Its increasingly sharp designs and highly functional retail trying-buying setup have really won over the tight-walleted Chinese.

As has Muji. Despite being from the official enemy, Japan, the strong aesthetic sense and coherent minimalist lifestyle flowing through all aspects of the brand have driven sales up more than 90% since the same time last year. Yet even Muji plans to drop prices by 20%.

In the era of the ‘new normal’ of China, where people can no longer rely on the certainty of future wealth, brands need to be ready to show why they are worth the money. Unlike the way it is often reported – that Chinese like a cheap deal – people are wanting to make a clever decision. And this need not be cheap. But it must be interesting.

This article was written by Ed Bell, CEO of FCB Greater China and originally appeared on WARC.