Lifestyle Segmentation of the Chinese Consumer

Lifestyle segmentation of the Chinese consumer

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ESOMAR World Association

of Research Professionals

March 2004

Vondelstraat 172, 1054 GV Amsterdam, The Netherlands Tel: +31-20-664 21 41, Fax: +31-20-664 29 22

Lifestyle Segmentation of the Chinese Consumer Forest Ma Sinomonitor International, China

INTRODUCTION Since Smith's (1956) introduction of market segmentation, it has become one of the most important concepts in marketing. It reveals that customers may be too numerous, too widely scattered and too heterogeneous in their needs and wants, which cannot be satisfied by one organization. Therefore, an organization must divide the total market into several relatively homogeneous groups with similar needs and desires. That is market segmentation. Market segmentation has been divided into four distinct types according to the different criteria used in segmenting the market: socioeconomic, geographic, product-related and psychographic (Pollock, etc. 1994). Socioeconomic market segmentation focus on the consumer's physical attribute such as age, sex, income, education, occupation and so on. Geographic market segmentation emphasizes the place that the consumer lives in. Product-related segmentation classifies consumers focusing on their purchase behavior within the relevant product category or the benefits the consumer expects to derive from a product category. Finally, psychographic segmentation, which is also called lifestyle segmentation, divides the total population into groups based on the consumer's motivation, attitudes, preference and values. Psychographics was a term first introduced by Demby (1974), putting together 'psychology', and 'demographics' to enhance understanding of consumer behavior, and to develop more adequate advertising strategies. Strictly speaking, there are small differences between psychographics and lifestyle. Psychographics generally refer to those concepts that are mental and individual, while the lifestyle tends to include behavioral that determined by social forces (Hughes, 1978). Therefore, psychographic studies place a heavy emphasis on personality traits. Lifestyle studies, on the other hand, focus on broad cultural trends or on the needs and values thought to be closely associated with consumer behavior, measuring activities, interests, opinions and attitudes (Douglas, 1978). Regardless of the difference, lifestyle research results in psychographic consumer profiles that show the overall manner in which people live and spend time and money. Lifestyles therefore help make sense of what people do, and why they do it, and what doing it means to them and others. Dr. William from Chicago University pointed out that marketing researchers usually used demographics characteristics such as sex, age, income, education to segment market in the past, however it is difficult to describe consumer's character perfectly, say nothing of understanding consumer's inner desires and needs. Lifestyle could explain consumer's behavior more accurately than demographics variables did. Lifestyle segmentation has been an active research field in western countries. Many lifestyle segmentation

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schemes have been built such as VALS (Values and lifestyles), AIO (activity, interest and opinion), LOV (List of values) and so on. Probably the most famous scheme is VALS 2, which was created by SRI, International. VALS 2 identifies eight segments of U.S. consumers based on two factors. One is consumer's resource, including income, education, self-confidence, health, eagerness to buy, intelligence, and energy level. The other is consumer's self-orientations or what motivates them. Three self-orientations are identified in VALS 2: Principle-oriented, status-oriented (or called achievement-oriented) and action-oriented (or called self-expression oriented). The principle-oriented consumers are guided by intellectual aspects rather than feeling's or other people's opinions. The status-oriented consumers are those whose views are based on the actions and opinions of others and who strive to win the approval of others. The action-oriented consumers desire social or physical action, variety, activity, and risk (Hanspal, 2001). Although VALS 2 profiles were originally developed to describe U.S. consumers, this technique has been applied in European and Japan, but with some modification. In Japan, Japan-VALS divides society into 10 segments on the basis of two key consumer attributes: life orientation and attitudes to social change. Instead of three orientations in VALS 2, the Japan-VALS has identified four primary life orientations: traditional ways, occupations, innovation, and self-expression. Each orientation provides a life theme around which activities, interests, and personal goals are woven. Besides VALS2 and Japan-VALS, there are some other schemes and techniques used in identifying lifestyle segments, such as AIO and LOV framework. AIO refers to measure of activities, interests and opinions of consumer (Peter and Olson, 1994). Activities are manifest actions such as work, hobbies, social events, vacation, entertainment, sports, shopping and so on. Interest is the degree of excitement that accompanies both special and continuing attention to it. Finally, opinions are descriptive beliefs about oneself, social issues, business, economics, products, culture and so on. In the AIO framework, respondents are presented with long questionnaires designed to measure their activities, interests, and opinions. For example, Wells and Tigert (1971) formulated 300 AIO items, while Cosmas (1982) used a questionnaire containing 250 AIO items. Obviously such long questionnaires must be very extensive and burdensome for respondents to complete the survey effectively. Therefore some simplified instrument was brought into practice, such as the List of Value (LOV), suggested by Kahle (1983), including only nine values. Here, values are commonly defined as desirable, trans-situational goals, varying in importance, that serve as guiding principle in people's lives. Except for LOV, another important scale for assessing value systems was developed by Schwartz and Bilsky (1990) and later modified by Schwartz (1992). Schwartz's (1992) value systems contained two dimensions: Adventure and Exploration vs. Safety and Conservation; Self-interest and Image vs. Conscience and Spirituality. Based on these two dimensions, BMRB divided Great Britain consumers into nine segments. On one hand, the studies mentioned above found that people subscribing to different lifestyles were likely to have different interests, opinions and attitudes. These differences were likely to be reflected in their choice of media, decision-making process and purchase behavior. On the other hand, these studies remind us that it is essential to identify basic values or life-orientations when using lifestyle to segment the market. Besides those value or life-orientations mentioned above, some other basic values found in earlier research were as follows: family oriented (or tradition oriented), achievement oriented, fashion-conscious, price-conscious, independent/ dependent, community-oriented, adventurer, depend and optimism (Erdener, 2001). Although lifestyle research is abundant in western countries, similar research is absent in China due to historical reasons. Before China carried out the reforms and opened to outsiders, the concept of lifestyle could not even be found in dictionary. Since the 1990s more and more researchers and organizations pay

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attention to the differentiation of Chinese consumers. On one hand, researchers are dedicated to classifying consumer by their socioeconomic characteristics, such as the ten-stratum classification suggested by Lu Xueyi (2001). On the other hand, many organizations tried to identify lifestyle segments of Chinese consumer. Wang Dengfeng focused on the personality traits of Chinese residents. Yang Xiaoyang identified five feminine lifestyles according to the five types of self-concept: Family-self, Fashion-self, Favor-self, Feeling-self and Freedom-self. She believed that lifestyle corresponded with the self-concept. Table 1 contains more detailed information about the five types of self-concept. According to Yang, there was a co-relationship among the five types of self-concept. For example, 'fashion-self' would restrict the development of 'family-self' while probably enhancing the development of 'fervor-self'. In other research about residents of Shanghai, Xiang Caifa identified five factors underlying the lifestyle segmentation: fashion-conscious, achievement-conscious, economic-conscious, sociable and intellectualism. Based on such research and our comprehension of the lifestyle of Chinese consumers, we deem that there are three basic life-orientations of Chinese consumers: family-oriented (traditional), achievement-oriented, fashion-oriented (self-expression). Besides the three basic life-orientations, we prefer to include some basic personalities to account for typical lifestyles of Chinese consumers, such as dependent or independent, impulsive or intellectualism. Considering we are focusing on the buying behavior of consumers, we think price-consciousness may account for Chinese consumers' lifestyles to some extent. As mentioned above, lifestyle research is not equal to the psychological profiles of consumers. According to Kaynak and Kara (2001), lifestyle is usually defined as patterns in which people live and spend their time and money. Believing that only life-orientations or personalities cannot describe the typical lifestyles that differentiate people, we prefer to say that psychological characteristics explain consumer behavior in microcosmic detail, while social grades explain consumers from the macroscopic view. We believed that a scheme combining psychological and socioeconomic characteristics could identify the typical lifestyles of Chinese consumers more accurately and effectively than only using one of them alone. As far as social grades are concerned, many researchers in universities or institutes have paid great attention to the differentiation of social grades. Most of these researchers are mainly focused on the academic discussion about social grades from a sociological view, such as ten-stratum classification suggested by Lu Xueyi (2001) and occupation classification suggested by Qiu Liping (2001). However, research on social grades from a marketing view are relatively absent in China. The 'Consumption classification' suggested by Li Peiling (2000) was an useful attempt, by using an Angle modulus to segment seven consumption grades and then exploring the characteristics of each grade on buying behavior. However, the study was only carried out in Chongqing, a southwestern city in China. Therefore, the concept of consumption grades should be validated in a larger range. BMRB developed a 'social grading' system is called SES (Socio-Economic Segmentations) to further understand the social and economic power of consumer households in China. The SES will be addressed in detail later in the study.

DATA COLLECTION We developed the lifestyle classification scheme of Chinese consumers based on the CMMS (China Marketing and Media Study), which was conducted by Sinomonitor International in conjunction with BRMB International and Telmar International since 1997. CMMS was a single source database of marketing and

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media information, linking Chinese consumer media habits and branded product data.

Sample Approximately 70,000 individual respondents aged between 15–64 are interviewed in CMMS each year by using PPS (Probability Proportionate to Size Sampling). The sample comprises of at least 5,000 in each of Beijing and Shanghai, 4,000 in each of Guangzhou and Chengdu; 2,000 in each of Tianjin, Shenyang, Jinan, Nanjing, Wuhan, Fuzhou, Xian, Kunming, Chongqing, Xiamen, Shenzhen, Hangzhou, Zhengzhou, Qingdao, Dalian, Harbin, Changchun, Changsha, Nanchang, Nanning, Ningbo, Hefei, Suzhou, Haikou, Foshan, Taiyuan. Data is projected to represent the adult population of these cities.

Questionnaire CMMS respondents are required to complete all questionnaire sections on demographics, products and brands, media and lifestyle.

Demographics The demographics information gathered in CMMS include sex, age, marital status, income, education, occupation, location of residence and so on. The information gathered in CMMS is weighted by sex, age and district to match known demographic profiles provided by the National Bureau of Statistics.

Product and Brand Consumption CMMS contains data on the purchasing habits of consumers for 130+ different product categories and over 5000 different brands.

Media Consumption The media section of the study provides different information on respondent consumption of different mediums of media, for example, penetration rates, frequency and frequency of exposure, etc.

Leisure and sporting activities The respondents are asked to answer a number of questions about their leisure and sporting activities.

Lifestyle statements The respondents are asked to indicate how much they agree with lifestyle statements from a range of different subjects. Responses to statements range from "definitely agree" to "tend to agree" to "neither agree or disagree" to "tend to disagree" to "definitely disagree". There are currently 130 lifestyle statements in CMMS.

ANALYSIS AND RESULT Basic Life-orientations of Chinese Consumers In this study, all 130 AIO statements are divided into two categories beforehand according to our consideration about lifestyles of Chinese consumers as mentioned above. Statements in the first category are used to identify underlying factors that account for different life orientations, while statements in the second category are used to validate and describe typical characteristics of different life-orientations. Therefore, we

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only include the first category of statements in factor analysis. A principle component factor analysis with varimax rotation was applied to determine the factor structure of consumers' life-orientation. The data set showed a sufficient correlation by a high Kaiser-Meyer-Olkin (KMO) index at 0.79 in the measure of sampling adequacy. The application of factor analysis was then supported. A scree plot was checked and the first factor was identified to better explain the common variance. Those poor items (statements) were dropped in the item-to-total correlation tests and 23 items were finally retained. According to the framework of Chinese consumers mentioned above, nine factors were extracted, which explained approximately 63.5% of the total variance. The first and second factors accounted for 16.01% and 12.24% of the total variance, and may be labeled fashion-oriented and achievement-oriented respectively. The remaining factors are given in Table 2. After the basic factors underlying the lifestyle have been identified, a K-means-type cluster analysis was used in Telmar. The objective of this analysis was to identify distinct life-orientation segments, four distinct life-orientations were identified: tradition-orientated, fashion-orientated, achievement-oriented and moderateoriented.

Fashion-oriented consumers 1. They are fashion-oriented and like to keep up with latest fashion. They prefer fashionable to practical. They like to try new brands and new products. 2. They are impulsive, affective and sociable, enjoy expressing their feeling in activities. For example, they like karaoke, drinking and chatting with friends, seeing films, eating at KFC or McDonald's, and longing for a romantic and comfortable life. 3. They lack independence and are prone to be affected by other people's opinions. They prefer to be told what to do rather than take responsibility. They are satisfied with their current condition and don't want change. 4. Although they like latest fashion, they are generally price-conscious. They like to bargain to get the cheapest product. Therefore, they are more inclined to buy fake brand. They pay attention to advertisements and are easily swayed due to their impulsive and fashion-orientation.

Tradition-oriented consumers 1. They are fogeyish and conservative. They don't like change and fashion. They are much more practical compared to fashion-oriented consumers. For example, they seldom go to cinema or KTV. They are not used to the computer and Internet. They emphasize job security rather than high income. 2. They are family-oriented, enjoying the family and believe that family is more important than their career. Watching TV at home is their main leisure pastime. 3. They are price-conscious. They usually buy the cheapest product and watch their budget carefully. They prefer to buy domestic brands due to lower price compared to foreign brands. 4. They are usually rational and seldom buy without consideration. They don't pay much attention to advertisements and are not easily swayed by them.

Achievement-oriented consumers

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1. They are achievement-oriented. They place a lot of value on their personal achievement, hoping to get to the very top in their career. They are full of self-confidence and pursue a life of challenge, novelty and change. 2. They are generally rational, decisive and independent. They want to be seen as individual. They are sociable but not easily affected by other people's opinions. 3. They like fashion and sometimes may buy impulsively. Their interests are aboard but they are not as enthusiastic for entertainment as are fashion-oriented consumers. 4. They like to take responsibility and pay attention to social problems such as environment protection. 5. They prefer high quality products and famous brands. Compared with other life-orientation consumers, they are not as concerned about the price of the product.

Moderate-orientated consumers 1. They are deeply impacted by Chinese traditional culture with moderate attitudes towards different affairs. They normally express neither very positive nor very negative attitudes. 2. They represent the largest of the life-orientation segments of Chinese consumers.

Life-orientations and Demographics There is no significant difference among the four life-orientation groups by sex. However, fashion-oriented and achievement-oriented consumers are younger than tradition-oriented and moderate-oriented consumers. The education level is highest among achievement-oriented consumers. The proportion of retired workers or housewives is highest in the tradition-oriented group. The more detailed characteristics of each segment are shown in the Table 3.

Social Grades of Chinese Consumers SES (Socio-Economic Segmentations) is a 'social grading' system developed by BMRB to help better measure and target Chinese households in accordance with their social and economic status. All CMMS respondents are grouped into three social grades in accordance with a point score system, by using education, house size and ownership of durables. In total, 43 different variables were statistically tested to form our final SES model (see appendix). Testing concentrated on education, house size, finance, and most, if not all, of the main appliances and electrical goods contained in CMMS. When choosing the different variables we tried to ensure that the products used in the criteria could not be of different use or necessity across cities and regions. In addition we tried to ensure that the assets selected had the same meaning in all cities and regions. For Education Level and Floor Area, a full scale was used for each question, so that more points are scored the higher up the scale you go. We chose to use CIE (chief income earner in the family) education as it relates more strongly to income and is comparable with the factors employed on other social grading systems used in other countries. Of the remaining 41 variables, we rejected seven, as these proved to have only a very weak correlation with income. Please note that, whilst acknowledging the fact that income is currently used in China as a surrogate

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for Social Grade, and that there are problems with collecting reliable income data in China, our model relied partly on income to develop the scoring algorithm. It was therefore important that the items we chose had a relationship with income if we were to develop an acceptable model for SES in China. We then developed a regression equation using the remaining 34 variables. The final SES equation we used contains 17 of these items. But why only 17 items? The answer is that once this level is reached, there is virtually no improvement in the model if further items are added. Adding all 17 remaining items increases the variance explained by less than 1%. And, adding these remaining items really only deals with tiny amounts of "random noise" in the data and was not explaining true variations in income. Regression analysis was used to calculate the final SES score, with the 17 items acting as independent variables, and income and the scores from the 34 items in total as the dependent variables. The coefficients obtained were then averaged, then rounded and factored up to give an overall score with a maximum value of 100. The final items used, and the rounded up scores for each variable are shown in Table 2–3: (See Table 4) Based on the SES score of each respondent, we classified all respondents in CMMS into three groups indicating different levels of social status and consumption ability: Group 1 with SES scores within 52 to 100, Group 2 with SES scores within 30 to 51, Group 3 with SES score under 29.

Social Grades and Demographics As shown in Table 5, consumers in Group 1 are generally well-educated adults with permanent jobs. Consumers in Group 3 are usually poor-educated and less than 30% have a permanent job. Similar with VALS 2, there are two dimensions underlying the lifestyles of Chinese consumers: one is life-orientation and the other is social grades. Based on these two dimensions, we could divide all CMMS respondent into 12 segments as shown in the Figure 1 Fashion leaders (1.7%) are fashion-oriented consumers who are generally well-educated young adult with abundant resources. They are the most receptive to new ideas and technologies, enjoying trying new products and brands. They are enthusiastic and impulsive consumers, spending a comparatively high proportion of their income on fashion, entertainment and social activities. Compared with fashion followers and imaginators, they are not so price-concerned but much more quality-concerned. They favor established, prestige products and services that demonstrate their image and status. Besides, they are more achievement-oriented and more readily to take responsibility than fashion followers and imaginators. Fashion followers (8.3%) are fashion-oriented consumers with somewhat modest resources. They prefer fashionable to practical, and like to keep up with latest fashion and trends. They also favor established, prestige products but they have not enough money to pay for them. Therefore they are more inclined to buy fake products due to their price concerns. Fashion imaginators (6.1%) are fashion-oriented consumers with somewhat low resources. They wish to be seen as fashionable, and may pay a lot of attention to fashion and trends. However, their consumer behavior is not consistent with their thinking. They value low-price rather than high quality. They enjoy buying fake brands in order to show 'fashionable'. Achievers (3.5%) are achievement-oriented consumers with abundant resources. They generally received a good education and are much more likely to be a supervisor or manager in a company in comparison to other consumers. They are goal-oriented and show a deep commitment to career and family. They are decisive,

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self-confident and rational people who value responsibility and independence. They are active consumers who favor established, prestige products and services that demonstrate success to their peers. They readily pay more for high quality products and readily accept new ideas and techniques. They represent the largest of the Group 1 segments. Social climbers (12%) are achievement-oriented but younger consumers with somewhat modest resources compared with the achievers. They also place a lot of hope on their personal achievements but do not have such a deep commitment to family and responsibility as achievers. They are active consumers who value established and stylish products, but are more price-concerned compared with achievers, as they possess lower resources. They are sociable and enjoy spending time in kinds of activity. Strivers (8.1%) are achievement-oriented consumers with low resources. They are unsatisfied people who wish to be successful in their career although only 30% possess a permanent job. Privileged traditionalists (2.5%) are tradition-oriented consumers with abundant resources. They generally received a good education and are more likely to work in government than any other consumers. They are generally mature, satisfied people who value family, tradition and responsibility. They don't care about fashion or trends but fervor product with high quality, especially household products such as conditioners, refrigerators and so on. Middle class traditionalists (13%) are tradition-oriented consumers with somewhat modest resources. They are the oldest consumers among groups. They are conservative, practical and rational consumers. They watch their budget carefully and seldom spend money impulsively. Watching TV at home is their main leisure pastime. Underprivileged traditionalists (14.1%) are tradition-oriented consumers with low resources. They are probably the most conservative consumers among groups. They have little buying ability except for necessities. Privileged moderates (3.4%) are moderate-oriented consumers with abundant resources. Middle class moderates (15.1%) are moderate-oriented consumers with somewhat modest resources. They represent the largest of the lifestyle segments of Chinese consumers. Underprivileged moderates (12.2%) are moderate-oriented consumers with low resources. (See Table 6a and 6b.)

DISCUSSIONS AND APPLICATIONS Lifestyles and Buying Behavior In the CMMS database, we could compare the difference among lifestyles on consumers' buying behavior, including product categories and more than 5,000 brands. We use colas and refrigerator as examples to illustrate the relationship between the lifestyles and buying behavior. Firstly, we examine the relationship between life-orientations and buying behavior. The survey reveals that the penetration of colas in fashion-oriented and achievement-oriented consumers is ten points higher than that of tradition-oriented. It also reveals that except for fashion-oriented consumers, other life-orientation groups distinctly prefer Coca-Cola to Pepsi. (See Table 7)

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We take refrigerator as another example to illustrate the influence of life-orientations on the brand choice. As shown in Table 8, achievement-oriented consumers show a positive preference for foreign brands while tradition-oriented consumers are more likely to buy domestic brands. Secondly, we explore the impact of social grades on consumer buying behavior. The survey reveals that in all three social grades, consumers have a positive preference for Coca-Cola to Pepsi, especially in Group 1. Segmenting the cola market by social grades is not as effective as life-orientations. (See Table 9) In another example, we find that foreign refrigerator brands such as Siemens, Panasonic, and Electrolux are mainly target Group 1, while domestic brands such as Shuanglu, Meiling and Changling mainly target Group 3. It also can be concluded that segmenting the refrigerator market by social grades is more effective than life-orientation segmentation. (See Table 10) Finally, we check the validity of lifestyle segments. As shown in Table 11, except for the fashion followers, other consumers show a distinct preference for Coca-Cola, especially the achievers and the privileged traditionalists. In this case, lifestyles segment market more accurate and effective than do life-orientation or social grades.

Lifestyles and Media Habits In the CMMS database we could compare the difference among lifestyle segments on media habits, including print media, TV, radio, Internet, cinema and outdoor media. We use magazines as an example to illustrate the relationship between the life-orientation and media habits. As shown in Figure 2, fashion-oriented consumers show a positive preference for magazines about entertainment, trends and fashion. Achievement-oriented consumers are more interested in sports, IT, cars and world affairs. Tradition-oriented and moderate-oriented consumers are more interested in magazines about family, healthcare, and youth digests comparatively. We can further explore the magazine preference based on lifestyle information. Although fashion-oriented are generally interested in entertainment, fashion and trends, there are significant differences among three fashion-oriented groups. Fashion leaders show a strong preference for all kinds of magazines, especially for the magazines about cars, IT and economy. Fashion followers show highest preference for magazines about entertainment and music, while fashion imaginators only show a little positive preference for magazines about entertainment and sports. Similarly, privileged traditionalists show a strong preference for all kinds of magazines except for entertainment and music, while unprivileged traditionalists show little interest in reading magazines. (See Table 12) We can explore the difference among lifestyles groups on other media except for magazines. As shown in Table 13, there is almost no difference in TV viewing among groups. However, fashion leaders, achievers and social climbers are much more likely to visit cinema with high frequency compared with other groups. Achievers, privileged moderates, privileged traditionalists, fashion leaders and social climbers are more easily heavy users of Internet. Heavy users of Internet are those who accessed Internet ten hours a week or more. Medium users are those who accessed Internet between two to ten hours a week. Light users are those who accessed Internet less than two hours a week.

Lifestyles and Leisure Activity & Time Diary

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In CMMS, we could compare the difference among lifestyles on the leisure activity and time diary. Taking travel as an example, social grades have a great impact on the travel habits. Group 1 (including fashion leaders, achievers, privileged traditionalists and privileged moderate) traveled more often than other groups in the past three months. Life-orientations have an obvious influence on the reason for the trip. Fashion leaders traveled for holiday more often, while privileged traditionalists and achievers traveled on business more often. (See Table 14) In addition to the applications mentioned above, we could explore more detailed information about each lifestyle segment based on CMMS data, as CMMS is a typical single resources data. The information about lifestyles would help the enterprises and their agencies better understand and target potential consumers, and promote the effectiveness of marketing strategies.

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