Advertising and China’s Growing Social Inequality

Chinese consumers are highly prized by both Chinese and international retail companies. As China has opened to foreign investors, the economy has grown consistently and at a prodigious pace. But growing economic inequality and the influence of advertising practices may contribute to social fragmentation in China. As global marketing firms like Proctor & Gamble and L’Oreal target China’s urban affluent, they help create two Chinas that map onto the growing class divide.

P&G executives make much of the economic and internet revolution in China, highlighting how Chinese consumers have more say in the brands they choose. “Instead of enjoying being taught and told what to do, they expect to be listened to, better understood and ultimately to be delighted,” one marketer recently said. But marketing-speak like this ignores the tendency to shape consumption habits rather than cater to them. These companies do more than capitalize on and reinforce class stratification (discussed below). Marketers teach how to consume.

Take Gillette’s “Shave Sexy” campaign. Corporate researchers found Chinese men prefer to shave dry, i.e. without P&G’s product slathered across their cheeks and chins. The solution? Create a market by tapping into male sexual anxieties. The company administered a “social experiment” in which women watched twin men shaving, one “dry” and one “wet.” Not surprisingly, the experiment yielded results favorable to product lines: women preferred the twin using shaving products. Gillette’s “sexy shaving tips video” taught a new generation of consumers that dry shaving meant a shriveled sex life. And with good results: The company had the best sales month in Gillette’s history. It seems Chinese consumers continue to be taught, though now by foreign companies in tandem with China’s media monitors.

The social “experiment” is worth a watch:

Chinese consumption: the broader strategy

Brand marketing memes like this complicate common assertions about consumer sovereignty in the digital age. Marketers may listen to consumers but only with the aim of shaping consumer desires to match the needs of manufacturers. These tactics are part of a broader strategy of instruction in the courtship of China’s increasing wealth.

The “long economic boom” for China’s highly managed economy has recently slowed, Chinese officials predicting GDP growth in the 7.2% to 7.5% range rather than closer to 10% typical of years past. But the slowed pace is still growth, and an emerging consumer class is ideal for brands looking to get in on the bottom floor.

Data from the National Bureau of Statistics of China shows the tremendous upward swing in consumer spending (see chart). Between 1998 and 2014, spending increased from below 50,000 CNY to 241,541 CNY. Though investment drove China’s fantastic GDP growth previously, declining foreign direct investment and weakening real estate numbers have encouraged a change in focus for national leaders. This shift has prompted Chinese policymakers to rely on consumer spending to power continued economic expansion. With affluence comes disposable wealth. Disposable wealth draws international goods producers like Proctor & Gamble, one of the early heavy investors in Chinese consumer markets.

Increased affluence among the Chinese is not, however, equally distributed. China’s economic fortunes have benefited an urban elite. In fact, a recent report illustrates just how uneven China’s development is. Using the Gini coefficient, researchers found China’s market reforms in 1978 were a trigger for the concentration of economic power in urban centers. The coefficient measures wealth disparities using “0” to indicate equal distribution. A score of “1” means a single individual possesses all the wealth. China’s score in 1980 hovered around 0.3. By 2012, the score reached 0.55, surpassing the 0.45 score for the United States. The so-called “rat tribes” living in underground bunkers that lay beneath urban centers is a glaring testament to the coexistence of poverty and affluence in China.

As the uneven Chinese consumer economy becomes a cornerstone of the global economy, the advertising industry has given China more attention. Following from government policies that have disproportionately directed resources to China’s industrial hubs, marketing analysis slices and dices China’s demographics in search of consumers. In the process, marketers have adopted a language of tiers. Top tier markets (often cities) are those with greater total disposable income, clear targets for multinational goods manufacturers. The marketing analysis firm, Boston Consulting Group, for example, has released a report that proposes viewing Chinese consumers as a “two-speed” consumer base. The report details how the average affluent household can expect 11 percent growth in income in the near term while “aspirant” households will only see 6 percent. This translates into a 20-fold difference in earnings. “Low-speed” households, expecting only a 3 percent uptick in earnings, with more than half of this bottom tier likely to see no growth at all. In sum, the “high-speed” households could provide near 90 percent of new consumption.

In light of this growing income gap, market researchers suggests a troubling strategy for companies in search of Chinese consumers:

“This two-speed consumption economy has vast implications for consumer-facing companies. A mass approach to such a huge market will not work. More than ever, companies must place their bets on the most promising income segments, product categories, and digital channels.”

The language in these reports reflects how class segmentation is, in part, entrenched by global marketing techniques. First, analysis identifies preferred consumers, ranking cities and regions as higher and lower tiers according to the disposable income that sales-driven firms can likely extract from Chinese consumers. Second, new media tools and allow marketing campaigns sophisticated consumer targeting. The strategy is simple. Find media that have the audiences with disposable income, focus advertising dollars in these areas and dissuade them from saving. “Consumer companies have an unparalleled opportunity to convince these consumers, particularly the upper middle class and above, to spend more and save less,” the BCG recommends. “By focusing on the high-speed parts of the Chinese consumer economy, companies can avoid getting stuck in the slow lane.”

What kind of social effects will result from the narrowcast targeting of income segments in relation to their media use? What role will this play in the nominally socialist politics of the country? This strategy to accommodate (if not monopolize on) growing inequality may have significant social effects, especially in light of the prospect that the wealth gap will grow for the next several years.

In the meantime, Chinese state governed media landscape will reap the benefits. State-run China Central Television has profited, bringing together government power and advertising revenues that state media of yore could not imagine. A live auction for advertising time slots for 2014 brought in 17.5 billion yuan, an increase of 10.8 percent on the previous year despite national economic slow down. The result is government-directed media with companies like P&G and L’Oreal footing the bill.

As foreign and Chinese advertisers flood China’s media, it stands to reason that class divides will deepen along the lines fostered by uneven geographic development and the cultural instruction pushed by China’s new vendors as companies create market demand. What remains to be seen is whether class fragmentation will have a tangible toll on social order: a Gini score above 0.40 predicts broad social unrest. For now, the promise of China’s “market socialism” is unclear for the social make-up of China and its increasingly wet consumers.