Building a big brand in China requires attracting and recruiting as many shoppers as possible, according to a new report that has found brand penetration is the driver of market share in the country.
Although shopper loyalty is important in certain consumer goods categories, including infant formula and baby diapers, market penetration - defined as the number of customers who buy a specific brand at least once a year - is the most important driver of market share, according to China Shopper 2013, jointly released by Bain & Co management consultants and Kantar Worldpanel consumer researchers.
The report on the purchasing behavior of Chinese shoppers is the second collaboration by Bain and Kantar, which collected data from 40,000 shoppers in nearly 2,000 cities across China who were each provided with a scanner.
Bruno Lannes, head of Bain's consumer products practice in China and co-author of the report, said the leading brand's penetration is about three to 10 times greater than the penetration of the average 20 brands in one category.
For the leading and the top 20 brands in the same categories, the difference in penetration rates is significantly larger than the difference in purchase frequency and repurchase rate, according to the report.
The report has discovered that low frequency shoppers - representing about 60 to 70 percent of any brand's shopper base and accounting for 20 to 55 percent of its revenues - are critical to any brand's revenues.
Brands with higher penetration rates also tend to have higher purchase frequency and repurchase rates, the report found.
"What may look like a niche brand is simply a small brand," Lannes said.
"It is not possible to create big brands by targeting and selling to only a few shoppers, with the hope they will become heavy or loyal buyers. Shoppers don't behave this way. To build a big brand in China, you need to sell to as many shoppers as possible," he added.
The report also found that while penetration is the key to building a strong brand, shopper bases don't stand still and shopper churn can be significant.
The shopper base of any brand is not stable, regardless of the size of brand, said Lannes, adding: "Penetration is paramount but it is also a leaky bucket."
Therefore, for a brand to grow, it needs to recruit new shoppers every year to compensate for those who leave, emphasizing even more the importance of penetration.
Given that shoppers have a very low engagement with brands, the report recommends that consumer goods companies invest in recruiting more customers each time they go shopping.
"For China, we believe that the highest value shopper research should focus on non-shoppers rather than existing shoppers," said Jason Yu of Kantar Worldpanel.
"Brand growth in China will need to come from share gains," said Lannes.
Hermann Ng, chief executive officer of Retail Nation, a consultancy firm based in Shanghai, said most Chinese people love shopping randomly rather than with a purpose, inspiring brands to expand their market presence to lure more shoppers.
He said Chinese shoppers are less sensitive to brands but more so to price and quality. So efficient coverage of a brand will encourage more shoppers to reach its products.
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