12 March 2007
Small Appliances Heating Up Mainland Market(HKTDC Enterprise, Vol 03,2007)
That's the verdict of a recent report by the Hong Kong Trade Development Council (TDC) research department, which documented the segment's rapid growth over a five-year period.
The research team found that several types of small appliances registered substantial growth in both sales volume and sales value between 1998 and 2003, with sales of shavers and microwave ovens doubling in that time.
However, the ownership rate of small appliances among urban households still remains low, underscoring the vast room for further expansion of a market that is forecast to grow 8%-14% annually in the next few years.
The report, entitled Big Market for Small Electrical Appliances in Mainland China, notes that today's user-friendly, practical and personalised small appliances meet the demands of the new generation of mainland consumers.
In addition, China's continual urbanisation, rapid economic growth and rising living standards are also expected to spur demand for these appliances.
Kitchen appliances are in strongest demand, accounting for 45.8% of total sales of all small appliances, followed by personal appliances (23.8%) and general appliances.
Needless to say, this lucrative market has attracted a large number of players, with mainland enterprises levering their cost advantages to become more competitive in kitchen appliances.
Famous domestic brands such as Midea, Galanz and Haier, for instance, are most sought-after in the microwave oven, induction cooker and oven markets.
However, when it comes to personal appliances, consumers tend to choose foreign brands since their products are more personalised and sophisticated and the safety requirements are higher.
In general, foreign brands dominate the high-end market while domestic brands enjoy price advantage - although the report notes that some foreign brands have also launched low-priced items.
Foreign brands have a particular advantage when it comes to safety as some mainland manufacturers do not pay much attention to either product security or after-sale service.
Safety and Brands Top Priorities
Mainland small appliance buyers are particularly concerned about:
Safety is of particular concern as incidents ranging from product breakdowns to domestic accidents involving household electrical appliances have been quite widespread on the mainland recently.
In addition, consumers have become more environment-conscious following the government's efforts in promoting environmental protection (such as introducing certification systems on safety, environmental protection and energy saving, and requiring some appliances to bear the energy-efficiency label).
This awareness, together with rising electricity charges and the economic benefits of energy-efficient appliances, means that consumers today are more concerned about the environmental-friendliness of household appliances.
As a result, mainland consumers are willing to pay a premium to buy products that can guarantee safety, environmental protection and energy efficiency.
Most buyers are prepared to pay a premium of a few percentage points - average acceptable premiums are 49% for safety guarantee and 40.4% and 40.5% for energy efficiency guarantee and environmental protection respectively - though some are willing to pay a much higher price for quality products.
However, the vast majority of consumers do not have a high awareness of the concepts of product safety, environmental protection and energy efficiency.
They often judge whether a product is safe, environmentally-friendly and energy-efficient based on its brand - the general impression is that foreign brands are more environmentally-friendly and energy-efficient - followed by labelling, word-of-mouth and the recommendations of relatives, friends and sales personnel.
Relatively few consumers base their views on information contained in the instruction manual, so a good brand is pivotal to breaking into the mainland market.
Labels are important in providing information on safety, environmental protection and energy efficiency, but mainland consumers have to be educated on product quality guarantees.
Not surprisingly, mainland retailers generally give high ratings to Hong Kong brands in terms of:
- functionality/durability/energy efficiency
- product/quality guarantee/maintenance
In fact, more than half of the retailers surveyed gave Hong Kong brands a score of four or above out of five where product safety, quality guarantee and design are concerned.
Mainland consumers also have a good impression of Hong Kong products, in particular in areas such as design, functionality, safety, environmental protection and energy efficiency.
Hong Kong brands range between international and domestic brands when compared to international brands, generally scoring seven or above out of 10.
Interviews with mid- to high-end consumers reveal that they believe Hong Kong-brand electrical appliances are better than their mainland counterparts in terms of energy efficiency and environmental protection - even though they are made on the mainland.
However, regional differences apply with Chengdu consumers generally giving higher ratings to Hong Kong brands than their counterparts in Beijing, Shanghai and Guangzhou - confirming that the market potential for Hong Kong-brand small appliances is greater in second- and third-tier cities.
Yet, while mainland consumers generally believe that Hong Kong brands are superior to mainland brands, only 37% indicate that Hong Kong brands should enjoy a price premium.
Some 57% of mainland consumers think Hong Kong-branded small appliances should only be slightly above the mid-range, even though they acknowledge they perform better in terms of product safety, environmental friendliness and energy efficiency.
Overall, competition in the mainland small appliances market is steep and companies wishing to gain a foothold should take special care in product positioning and:
- devote more effort to brand building
- enhance the levels of product quality and design
- emphasise the strengths of Hong Kong products in functionality, safety, practicality and design
- strengthen consumer education to help consumers understand the importance of safety and quality-guarantee labels
- target second-tier cities
WRITTEN BY NEIL TURNER
YOUNG GENERATION MAIN CONSUMERS
Mainland retailer analyses show that kitchen appliance buyers are mainly young couples aged 18-40, followed by men aged 18-40 and women aged 18-30; while personal appliance consumers are mainly men and women aged 18-40.
Overall, buyers of small appliances are relatively young, reflecting the fact that these products are targeted mainly at the new generation of consumers who frequent major sales channels such as hypermarkets, electrical appliances chain stores and department stores.
Surveys and in-store observations also found that most mainland consumers still prefer traditional, practical small appliances, although some also choose specialised products like juicers, small massagers, foot spas or hair removers that satisfy their emotional needs or reflect current trends and lifestyles.
The most popular small appliances on the mainland market possess, in descending order of importance, the following features:
- environmental friendliness
- energy efficiency
- multi purposes
- health elements
- high technology
- beauty elements
- compact size
Some mainland enterprises have been quick to capitalise on these consumer preferences and have incorporated gimmicks into their products, such as offering "intelligent" or multifunctional models or adding antibacterial and energy-saving features to their goods. Products with Chinese characteristics such as electric Chinese medicine pots, soup pots and tea makers have also been launched.
Sales in the small appliances market on the mainland are also spurred by product replacement as the market has entered a replacement period.
According to a recent TDC survey, replacement sales comprised one-third of total sales of small kitchen and personal appliances in the past year.
Consumers learn about these small appliances mainly through TV commercials, newspaper and magazine advertisements, sales promotion activities, word-of-mouth and the Internet.