Winning the battle for China’s new middle class
A huge wave of increasingly affluent consumers will constitute China’s urban majority by 2020. To serve them, multinationals must adapt—or be left behind.
June 2013 | byMax Magni and Felix Poh
The rapid emergence of a prosperous, more individualistic, and more sophisticated class of consumers in China is creating unprecedented opportunities and challenges for companies serving them. The opportunity is clear: in less than a decade, more than three-fourths of China’s urban households will approach middle-class status on a purchasing-power-parity basis (for details, see “Mapping China’s middle class”).
But the market is rapidly bifurcating between a still large (but less affluent) mass market and a new, even bigger group of upper-middle-class consumers—one that’s so large and significant we’ve referred to it in the past as the “new mainstream.”1The people in this more affluent segment tend to live in China’s higher-tier cities and coastal areas, enjoy household incomes between 106,000 and 229,000 renminbi ($16,000 to $34,000) a year, and have opinions strikingly different from those of their mass-market middle-class counterparts.2
As China’s new upper middle class swells to include more than half of the country’s urban households by 2020—up from just 14 percent in 2012—it will strain many of today’s business models. Companies that have long catered to consumers trying to meet basic needs at affordable prices will face a shrinking market and risk losing millions of customers looking to trade up.
Simultaneously serving a familiar but declining mass market and an uncertain but promising new upper-middle-class one will require novel approaches. This article is a report from the front lines: how consumer-goods companies can craft brands that appeal to the rising middle class, develop “dual strategies” and transition plans