Davos Agenda

Why businesses need to think about how they target the generation gap in China

A busy shopping street in Shanghai, China

There are many different groups of consumers in China Image: Photo by Euan Cameron on Unsplash

Cinthia Chen
Managing Director and Partner, Boston Consulting Group
Wu Chun
Managing Director and Senior Partner, Boston Consulting Group
Nikolaus Lang
Managing Director and Senior Partner; Global Leader, Global Advantage Practice, Boston Consulting Group
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Davos Agenda

This article is part of: Annual Meeting of the New Champions

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  • China's middle-class and affluent consumer population will increase by 80 million by 2030.
  • To leverage this opportunity, businesses need to understand who these 80 million consumers are and what shapes their preferences.
  • Success in China’s consumer market will depend on firms adopting a segmentation lens and tailoring their products and services to the preferences of different consumer generations.

These are interesting times in China. The country’s economic recovery from the COVID-19 pandemic is coinciding with profound shifts in its population structure. For businesses catering to Chinese consumers, there is much to evaluate. New Boston Consulting Group (BCG) research on the evolving consumer class in China shows that the country’s middle-class and affluent consumer (MAC) population will increase by 80 million by 2030. Nearing 40% of the total population, this segment will become a source of long-term resilience for the Chinese consumer market.

To leverage this opportunity, businesses need to understand who these 80 million consumers are and what shapes their preferences. This entails differentiating between preferences that naturally ebb and flow according to life stages and those that are unique to each generation. By doing so, firms can formulate more precise product strategies and optimise their business portfolios.

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Data released by the National Bureau of Statistics in January showed negative population growth in China for the first time in 61 years. Simultaneously, the proportion of the population aged 65 and above reached 14.9%, making China a moderately-aged society. Among the 80 million new MACs, considerable purchasing power is concentrated in the hands of those in the 30-60 age group. Over 70% of this segment will live in tier-3 cities and below, making lower-tier cities an increasingly important part of the market.

China expects to add 80 million MACs by 2030, with over 70% from lower tier cities.
China expects to add 80 million MACs by 2030, with over 70% from lower tier cities. Image: BCG MAC Database BCG Analysis

Intergenerational differences in consumption attitudes and beliefs, based not just on birth year, but also on socioeconomic factors, will follow generations as they pass through life stages. Significant historical events and cultural experiences leave indelible marks on groups of people in their formative years, thus shaping common values and ideas. This, in turn, manifests in the choices they make as consumers.

Chinese consumer profiles

Taken as a whole, 80% of China's 1.4 billion population is made up of four generations: Gen Z, Gen Y, Gen X and the baby boomers. They are the main creators of social wealth, with Gen X and Gen Y accounting for over 60% of total income.

Gen Z (those born between 1995 and 2009) is influenced by deep digitisation and globalisation. This age group values emotional well-being, aesthetics and intellectual and spiritual fulfilment more than any of their predecessors. They tend to relate to more segmented circles and subcultures. Most of them are single (79%) and are the most educated generation so far, with their career still largely just beginning.

Gen Y (those born between 1980 and 1994) is the first generation of only-children in China and as such received more attention and expectations than the two generations before them. Having benefited from the expansion of compulsory education and urbanisation, many of them moved from small towns to medium and large cities, striving to improve themselves. A majority of them (73%) are married and have children.

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Gen X (those born between 1965 and 1979) is the generation of accumulated material wealth. Born in the early stages of the reform and opening up period, this generation became the backbone of the reformed market economy. Of all the generations, it holds the highest positions in the workplace and has the highest incomes.

Baby boomers (those born between 1950 and 1964) are a generation born during a period of relatively limited material resources. They possess rich social and economic experience. As they move into retirement and a life of leisure, they have more free time to focus on themselves and explore new possibilities.

Research into the development and evolution of these consumer generations, as well as their attitudes, beliefs and consumption behaviours, points to two key insights:

1. Gen X and Y will be the twin engines of consumption

In the past few years, an obsession with youth has swept the consumer market and many brands have rushed to focus on Gen Z, studying their needs, preferences and behaviour patterns to capitalise on opportunities for future brand development. However, from the perspective of population base and per-capita category consumption, Gen X and Y will remain the main drivers of consumption for a considerable time to come. While they may not be as willing to try new things as Gen Z, both have a stronger willingness to consume and pay a premium for a higher quality of life.

Gen X and Gen Y spend more than other generations across most categories.
Gen X and Gen Y spend more than other generations across most categories. Image: BCG CCI-Chinese Future Consumer Survey, October 2022

2. Different generations display clear distinctions in persona

The evolution of China’s economy has led to different consumer generations acquiring vastly different life experiences. This, in turn, has shaped their collective memories and value orientations, such that they do not exhibit the same consumer attitudes and preferences as their counterparts did at the same age. They spend differently and on different things. Their ability to spend also varies. In essence, all four generations present distinct consumer personas.

Developing a China strategy

A three-pronged China strategy for businesses to win different consumer groups would entail:

1. Acquiring a balanced view of future consumers

As the next consumer powerhouse, Gen Z has been and will remain a key focus, but firms should not overlook older generations, especially the large cohorts of Gen X and Y with deep pockets. Firms also need to capture trade-up opportunities in markets driven primarily by older segments.

2. Understanding what sticks across generations

Consumer preferences naturally change with trends and life stages, but each generation has its own unique attitudes, values and traits that stick with them throughout life. Firms should identify what changes and what sticks, to get future-ready.

3. Finding segmentation opportunities

Segmentation is more important than ever. The traits that stick throughout life for each generation imply great opportunities. It will be more difficult to rely on the success of a single product. Firms should consider a portfolio targeted towards niche markets as a new growth driver.

The Chinese consumer is not a monolith. Success in China’s consumer market will depend on firms adopting a segmentation lens and tailoring their products and services to the preferences of different consumer generations. The time is ripe for businesses to delve deeper into the generational gap and make the most of it.

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