The PESTL analysis brought forward demographic and socio-economics measures, attitudinal characteristics and behavior characteristics that the authors can use to segment the market on.
4.4.1 Total market
Shanghai and Beijing has a of 48,6 million people, of which approximately 51% of the total population are men and 49% of woman. The urban population accounts for roughly 87,5%
which means that the urban population amounts to 42,5 million people, and the rural population amounts to 6,1 million people.
4.4.2. Income per household
The PESTL also revealed different households measured on income levels. The income levels of the households also showed to influence the amount of money spent on discretionary consumer goods, including watches. The different households are; Affluent, Mainstream and Value.
Affluent households have an annual income above CNY 214.200 and are expected to make up 16% of the population by 2020. They annually spend CNY 132.200 on discretionary consumer goods.
The Mainstream households have an annual income between CNY 100.800-214.200 and are by far the largest household group, as they will make up 71% of the population by 2020. This household group spends CNY 37.800 annually on discretionary goods.
The Value households have an annual income between CNY 37.800-100.799 and will make up 12% of the population by 2020. This household annually spends CNY 25.200 on discretionary goods.
4.4.3 Age composition and consumption patterns
The +40 make up roughly 56% of the population in the two metropoles. They seek value for money, and they rarely spend any money on discretionary goods.
The post-80s generation makes up 16% of the population in Shanghai and Beijing. They are less price sensitive, and more inclined to spend money on discretionary goods. This generation prefer to shop online, as they spend the majority of their time working and being with their family.
The young post-90s generation makes up 17% of the population. They prefer European, Japanese and South Korean brands over domestic brands, and they believe in the correlation between price and quality. This generation is also inclined to spend money on discretionary goods, however they value smaller discounts due to their lower financial status compared to the post 80’s generation. They often shop online, but they also appreciate unique in-store shopping experiences.
4.4.4 Segments
The findings from the PESTL analysis presented above have led to the development of the following segments.
Income Class → Generation ↓
Affluent Mainstream Value
+40 generation Affluent +40 Mainstream +40 Value +40 Post 80’s Affluent Post 80’s Mainstream Post 80’s Value Post 80’s Post 90’s Affluent Post 90’s Mainstream Post 80’s Value Post 80’s
(Chart 9, Consumer segments, own illustration, 2018)
Due the lack of information available, the authors are unable to precisely determine the size of each segment.
Affluent +40
These consumers grew up under tough conditions, but have managed to find jobs with higher incomes. While they spend the majority of their income on either their parents or children, they are willing to pay a premium for high quality products that give them great value.
Mainstream +40
These consumers share the same background as the segment above, but have a more modest income. They spend the majority of their income on their children and the rest goes to savings.
They rarely buy discretionary goods, and they are more price sensitive.
Value +40
These consumers also come from a tough background, and have relatively lower incomes. They generally save the majority of their money, and they rarely buy discretionary goods.
Affluent Post 80’s
These consumers are the first generation of the one-child policy, and have very opposite shopping habits from their parents. They barely save, and spend the majority of their income on trendy products that can help distinguish their personality. This segment has strong consumption impulses, and often shop online.
Mainstream Post 80’s
These consumers are very similar to the Affluent Post 80’s. They also spend the majority of their income on trendy products, yet they are a little more price sensitive that the affluent ones.
Value Post 80’s
These consumers are also spend a huge part of their income on trendy products, but due to their income, they are much more price sensitive, hence these consumers could be classified as being thrifty.
Affluent Post 90’s
This generation of consumers is the most “Westernized” consumers in China. The do not save, and they spend the majority of their income trendy branded products from Europe, Japan or South Korea. This generation is a little more price sensitive than the Post 80’, and they thus appreciate smaller discounts. They often shop online, yet they also like the unique experience that physical stores can offer. Social media is furthermore the place to reach this generation across all segments.
Mainstream Post 90’s
These consumers have the same characteristics as the Affluent Post 90’s, yet they are more price sensitive due to their lower financial status.
Value Post 90’s
These consumers primarily represent the part of this generation, which still lives at home. They too prefer foreign brands to domestic ones, but they are very price sensitive because of their financial status.
Chapter 5.Analysis of the internal environment
The internal analysis will be conducted through Porter’s Value chain and Barney’s VRIO framework. The analysis will include an elaboration of the activities in AV’s the value chain, which serves to bring forward how AV creates value for the brand’s customers. The VRIO analysis serves to enhance and enlighten the components of the value chain, in order to create sustained competitive advantage The analysis will be summed up in a partial conclusion which serves to give the reader a structured overview.