Brand penetration seen as vital in China

19 July 2013
BEIJING: Brand penetration is the most important factor in driving market share in China, with the leading brands achieving between three and ten times greater penetration rates than their category average, a new report has found.

Bain, the consultancy, partnered with consumer research business Kantar Worldpanel to gather data from 40,000 shoppers, armed with scanners, in nearly 2,000 cities across China for a joint report, China Shopper 2013.

The study revealed that the difference in penetration rates for the leading and the top 20 brands in the same categories was significantly larger than the difference in purchase frequency and repurchase rate.

In addition, low frequency shoppers – those who buy a brand two times or less per year – were critical to revenues, as they represented 60% to 70% of any brand's shopper base, and accounted for 20% to 55% of its revenues.

Brands with higher penetration rates also tended to have higher purchase frequency and repurchase rates.

"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," said Bruno Lannes, head of Bain's consumer products practice in China and co-author of the report.

"To build a big brand in China, you need to sell to as many shoppers as possible," he added.

But while penetration is vital for success, the report noted that shopper churn can be as high as 50%. "Penetration is paramount but it is also a leaky bucket," Lannes said.

With shopper loyalty not greatly in evidence, apart from certain categories like infant formula and baby nappies, consumer goods companies were advised in the report to invest in recruiting more customers each time they go shopping.

Jason Yu of Kantar Worldpanel said: "For China, we believe that the highest value shopper research should focus on non-shoppers rather than existing shoppers."

Lannes echoed the point, saying: "Brand growth in China will need to come from share gains."

Speaking to China Daily, Hermann Ng, chief executive of Shanghai-based consultancy Retail Nation, said Chinese shoppers were more sensitive to price and quality than to brands, so that efficient coverage of a brand would encourage more shoppers to purchase its products.

Data sourced from China Daily, Kantar Worldpanel; additional content by Warc staff
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