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Consumerism in the Wild, Wild East: What to Know About Designing for China

by Gabriel Biller, posted January 22nd, 2010
categorized under China, artefact, design, emerging markets, mobile, research, social, trends | Comments

Introduction

This article is not a primer on how to do business in China. The reality of doing business in China can be, well, pretty ugly. We will not go into the corruption and other non-niceties of conducting business there in detail. To summarize very briefly, China’s leading political ideology (if there is one) according to James McGregor, is enriching the country (and usually the political leadership and cadre’s families) in any way possible, without ever disrespecting or challenging the government’s structure, position, and authority.

In China, you pretty much have to play by their rules, show respect, and demonstrate how your objectives are not only good for your business but also good for China as a nation. You shall never criticize the government or proclaim what’s wrong with their politics. For more information on these topics and some of the more interesting anecdotes from the front lines, we highly recommend McGregor’s One Billion Customers: Lessons from the Front Lines of Doing Business in China. McGregor himself also recommends an excellent reference on the nuances and peculiarities of business culture and negotiation in China in Lucian Pye’s work Chinese Negotiating Style.

Take the recent debacle between Google and China over censorship: the audacious Googlers violated the simple rule that you simply don’t ever question their rules. To be sure, China regularly censors sites and content, closes down search, social networking, and other sites, and spied on Google accounts. They may have done some other questionable things, but one must remember that China is not a democracy. In a way, it reminds me of the movie Fight Club, where the “first rule of fight club is you don’t talk about fight club” (that’s also the second rule of fight club, incidentally). In China, the first rule of China is you don’t question the rules of China. The second rule is you don’t disrespect the Communist party or the government. They shall not lose face. I’m trying to avoid taking political positions here, so be it. Google’s exit is, perhaps, Baidu’s gain.

But let us not digress further. Discussing the politics of China is not within our purview at Artefact, so better to leave that to the political pundits, freedom fighters, activists, and global political leadership. We might contend, however, that even by playing within China’s rules of censorship, progress can be slowly made and China’s citizenry can be empowered with technology, information, and the means of assembling and building communities, for they are a clever people with a lot of pent-up creative ingenuity. Revolution and political change is ultimately up to China’s people, not to foreign multinational corporations who want to sell their products and services in China’s markets.

Who is the Intended Audience?

The audience for this article is primarily professionals in product management and development, innovation, R&D, product and product portfolio planners, engineers, and executives who are responsible for designing and creating technology products (hardware, software, services). In particular, those of you people above who feel perhaps a bit less informed about China than you’d like to be.

What this article is intending to convey are some key insights, lessons, or realities you should know about if you intend to develop, design, and market consumer products for China. Among the many considerations you’ll need to make as a business interested in entering or further penetrating the Chinese market(s), learning how to work and communicate well with the right officials and rainmakers, being unbelievably persistent, and understanding the varying and even appalling levels of corruption that may be involved will consume much of your time and energy (and, perhaps, your soul). Your challenges will range from building the right win-win argument, establishing long-term relationships with the right Chinese business people, power brokers, and partners, all the while not defying the rules or causing anyone to lose face. Another significant challenge will be distribution, as getting your product in front of consumers in China is not quite how it works elsewhere in the world.

In the spirit of full disclosure: I myself have never traveled to China, though I was in Hong Kong for 10 days in 2007 and studied some Mandarin and Chinese history in college. In researching and writing this article, I owe a tremendous amount of debt to the market researchers, strategists, cultural translators, user researchers, and Chinese graduate students and other Chinese professionals whom I interviewed for this article (Elaine Ann, Ash Bhoopathy, Ravi Chhatpar, Ian Donahue, Anjali Kelkar, Shuang Li, Lin Lin, Fei Qi, Erin Sanders, Pinxia Ye, and Lisa Yong among them).

The Short Version: 10 Tips + 1 Caveat

If you are pressed for time, short on patience, or just generally not fond of my laborious prosaic style, here is the abbreviated version of all the main points I want to make. If you care for more details, please read beyond this section for additional details, anecdotes, charts, and statistics.

China consists of many markets and many unique customer segments. If you don’t know this by now, you really should. Therefore, you will have to do your share of ethnographic homework and market research to succeed. However, doing the above, particularly the ethnographies and user research, will be more difficult than you are used to. Add to that that most Chinese consumers still don’t really know what their needs are! Their world has changed so incredibly fast, and for many, they still are learning about what there is in the consumer marketplace beyond the basics of food, clothing, shelter, and the most basic consumer durables. Therefore, products cannot simply be “translated” into Chinese; they must take into consideration the cultural and social context, thought models, and unique behaviors of the many different types of Chinese people.

The Chinese have got their minds on their money, and their money on their minds. The Chinese mindset is, contrary to most Western perceptions, quite individualistic and in a country in which there is little to believe in, the primary directive is “to get gloriously rich.” In yuan they trust. Like the astute social commentators and fans of Chinese martial arts culture, The Wu-Tang Clan sang, “Cash Rules Everything Around Me. C.R.E.A.M. Get the money. Dolla dolla bill, y’all.”

Why? Because life in China is unstable and insecure. The government is no longer a provider of any form of safety net. So everyone must look out for themselves. Money is power, prestige, and respect in China. Hence, the Chinese are prone to flaunt it if they have it. Incomes in China have not necessarily kept pace with GDP growth over the past couple decades, and meanwhile the cost of living is rising. Foreign goods are also subject to high import tariffs, making them extraordinarily expensive by Western standards. The paradoxical thing with the Chinese, however, is that while they admire and strive for luxury and quality items, they are also traditionally very frugal and value-minded, particularly the older generations.

Chinese society can be partially understood in terms of social identity theory and notions of “ingroup” and “outgroup.” The Chinese will always be suspicious of outgroup individuals. This is not just a matter of Chinese citizen versus foreigner, but even within China between different regional or ethnic peoples, or to some extent even between social groups or “tribes.”

China’s youth generation aged 15-30 (nearly 330 million today), in particular the urban youth — sometimes known as the “rare generation” — are remarkably different from their elders. They are mostly only children, under tremendous familial pressure to perform and succeed in life, but they also want to enjoy their freedoms, the good life, consume a whole lot, and they want it right now! They are driven by the constant search for newness or novelty. They are optimistic about the future, yet very impatient. They are individualistic and self-expressive, yet they are incredibly “tribal,” in Seth Godin’s sense of the word (except, perhaps, in terms of having a clear “leader”). And because they are continuously experimenting with their own identities and new freedoms through fashion, style, food, and material goods, who they are and what they want is constantly shifting. They have a lot of purchasing power and will represent a major consumer force for China, yet they are curiously protean and one of the most demanding consumer segments in the world.

Because of these characteristics of ingroup bias and tribal behavior, Chinese consumers are especially drawn to products and brands that communicate a clear lifestyle, identity, and culture. The desire to be individualistic has its limits; Chinese consumers, especially the urban youth, want to fit in with the subcultures or tribes in which they want to be accepted. This means buying the same brands and products, following the same styles and trends, etc.

In contrast with the “rare generation,” China’s more senior consumers (aged 35 and older) tend to be very frugal, stubborn to adopt new things and technologies, and are extremely value-conscious (if they are middle class; the wealthy are a different story). Most are investing the majority of their time, energy, and income on providing the best of everything for their only children (the spoiled rotten ones are sometimes referred to as “Little Emperors”). However, in a world completely different from the world in which they were born and grew up, these Chinese adults are suddently bombarded with and overwhelmed by choices they’ve never had to make before. They need information and explanations of how new products will matter to their lives, otherwise they’ll simply rely on what they’ve always known and buy the cheapest, good-enough option.

One important thing to understand is that the Chinese have a tremendous amount of national and cultural pride, stemming not just from thousands of years of being one of, if not, the most powerful civilization in the world, but also from three decades of tremendous economic progress. While they admire foreign, global products for their quality, technologies, and design, they also fully intend to build their own domestic brands to compete globally. They are looking to the West to learn from and borrow (or steal… it’s often true) their intellectual property, methods, and practices, so that they can catch up. But, it is critical to recognize that the Chinese want to modernize, not Westernize. They wish to be modern while retaining their Chinese essence. On the more pop cultural level, you see this in the form of so-called “China Style,” or fusion of traditional Chinese elements with Western styles, music, fashion, etc.

In addition to competition coming (eventually) from domestic brands, you must also recognize that right now you are engaged in fierce competition with shanzhai products (“knockoffs”). Regardless of the differences between the youth and their elders, most Chinese do recognize and appreciate quality and luxury. They just simply cannot afford it. They are drawn to the global brands and products that exude qualities like performance, luxury, beauty, style, and power. However, most Chinese who cannot afford the global branded products they aspire to own, are perfectly happy with fake alternatives, which are often as good as the real thing. In addition, these shanzhai products will be manufactured and made available to consumers in more variations than you’ve ever dreamed of before your products will ever make it to market. You can count on that! Finally, the shanzhai industry should also be given some credit and recognition for the creative, entrepreneurial, DIY culture it is fostering, providing consumers with access to a high degree of personalized or customized items across a variety of product categories. In a country of 1.3 billion people, it’s difficult to differentiate oneself from the crowd, but shanzhai products (particularly electronics) introduce all sorts of novel variations, at remarkable product development cycle speeds, feeding into the Chinese thirst for anything new.

It’s worth noting a thing or two about the Chinese consumer retail environment and experience as well. While the retail environment is beginning to look a lot more like that of the West (modern shopping malls and hypermarkets are being built by the hundreds), there is still something very different and unique about how and where the Chinese shop, which is one reason you will really need to work hard on your distribution strategy. Shopping malls are more like lifesized catalogs for most of the middle class, where they can browse and take note of the latest high-end styles and products. But, more often than not, the middle class consumer will then head out to the street to the large marketplaces or bazaars (in areas like Zhongguancun in Beijing) where hundreds or thousands of small vendors will sell the same or shanzhai versions of many products (electronics, fashion, or media) at negotiable prices.

The Chinese have a well-justified distrust of media in general. However, in the Internet they trust. Bulletin board systems (BBS), forums, blogs, online communities, and social media are their most trusted sources of information. They do not generally believe advertisers’ claims. They seek out the advice, experiences, reviews, and feedback of their peers online before making purchase decisions. Chinese Internet users spend 18 hours per week online versus only 12 hours by their American counterparts.

Chinese consumers are also beginning to greatly increase the amount of shopping they do online, as credit card penetration has rapidly increased and other forms of online payment have emerged and gained consumer trust and confidence (like Alipay from Alibaba, which is more or less like Paypal). Also, the Internet simply offers a great variety of products to choose from, things which may not be available on the mainland. Today, most online shopping is transacted as cash-on-delivery, but that is likely to change in the coming years. And because mobile phone penetration in China is significantly higher than computer penetration, expect that consumers will begin using their phones and computers to shop more.

Despite the high value that most Chinese consumers place in peer-review of products, however, they are still suckers (like most of the rest of us) for the right celebrity product endorsement. So, don’t underestimate the influence of the right personality.

Chinese consumption to date has been primarily focused on goods (fashion, gadgets, etc.), but as consumers they are beginning to sophisticate and mature. Relatively speaking, the average Chinese consumer’s purchasing power is still but a fraction of that of the average American consumer. However, as incomes continue to rise, and for those already upper middle class and wealthy consumers, expect them to become more demanding for new services and experiences, in such areas as food, style, living, mobility, health and wellness, and finances.

ONE CAVEAT: Everything just stated above is, unfortunately, not carved in stone. Because of the incredible rate of progress and change occurring in China, anything you learn today may not be true a year or two from now. You are playing a frantic game chasing rapidly moving targets. Therefore, take our suggestions above to heart, but be willing to revisit them in the near future for further evaluation or validation.

WARNING: Stop here if you’ve had enough or are a lazy reader. Continue below the fold if you’d like to hear a lot more details. And also join in the conversation on our blog by commenting on, debating, or even contesting our claims. We hope to open up the conversation to all of our readers for our mutual enlightenment.

The Future Looks Red, but No Need to Panic (Yet)

Global GDP (nominal) was roughly US$61 trillion in 2008. According to the International Monetary Fund, the European Union collectively represented about 30.2% of the global economy, the United States 23.7%, Japan 8.1%, and China had the fourth largest economy representing 7.1% of global output. Ten years ago China represented only 3.9% of global GDP.

In the last 30 years, starting just before Deng Xiaoping initiated China’s economic reforms, the country’s GDP has grown more than 81-fold, while the US’s GDP grew only about 6.3-fold (not adjusted for inflation). This is truly awe-inspiring! But, make no mistake, China is still overall a relatively poor nation. Today, it is a country of relatively few haves and significantly many more have-nots. It has an emerging middle class, which depending on how you define “middle class,” is anywhere from 50-500 million people. The middle class and the rural poor have managed to more or less escape extreme poverty in these past three decades, and now are finally becoming a massive and legitimate consumer force in their own right.

Sources: US Bureau of Economic Analysis, National Bureau of Statistics of China

In Maoist China (1949-1979), key consumer possessions were a bicycle, a wristwatch, and a sewing machine. In the 1980s and 1990s, major consumer durables included color TVs, washing machines, refrigerators, and electric fans. In the past decade, key consumer possessions became mobile phones, computers, air conditioners (in urban areas), and showers. For the typical Chinese, the future decade will become about buying his/her first car and possibly owning a home.

Late last year, China passed the United States as the #1 automobile purchasing nation. They now manufacture more cars than we do too. They’ve all but acquired Volvo from Ford and bought the rights to technology platforms from Saab from GM. They have more Internet users (338 million) than the United States has people. They now have over 720 million mobile phone subscribers, and are still at only 54.5% penetration. With their strong and steady economic growth rate, predictions from a variety of experts and analysts — from the World Bank to the IMF to Goldman Sachs, Morgan Stanley, and Credit Suisse — indicate that Chinese GDP in purchasing power parity (PPP) may actually pass that of the United States in anywhere from 5 or 10 years (optimistically) to maybe 20 or 30 years (conservatively). The ever entertaining Swedish professor of international health and co-founder and Director of the Gapminder Foundation, Hans Rosling, has even predicted the very day that Chinese GDP per capita in PPP (and that of India) will pass that of the United States: July 27, 2048. Definitely check out his TED talk.

What is undeniable is that eventually China will have the largest economy in the world (though not necessarily the highest per capita wealth in the world).

Nobel laureate economist Robert Fogel recently raised a lot of eyebrows by declaring that in 30 years, China’s GDP will reach $123 trillion and represent 40% of the global economy, with the United States trailing in a distant second at 14% of global output, and the European Union at a measly 5% of global GDP.

Could this be what global economic hegemony will look like?

His critics arguments aside, the point here is that Chinese political leadership has made it clear that they no longer wish to be the factory for the world. They are proud, optimistic, and determined to attain superpower status. And, part of this road to global economic hegemony will include developing their own Chinese companies and brands that will themselves become global brand powerhouses. So, while today you may consider a Lenovo laptop or a Haier beverage cooler when you go to Best Buy or Home Depot, be prepared for an onslaught of other Chinese brands to become part of the American consumer landscape. Eventually. Maybe in a couple decades. Maybe more?

The good news is that this means there is still time for you, as an American or Western business, to still look to China as an important component of your global strategy. Chinese-made products are still beleaguered by a perception (and, perhaps still too often, a reality) of low quality, cheap and shoddy manufacturing, and questionable adherence to safety standards. China is still learning how to move up the global value chain, but it is doing so at an alarmingly rapid clip. Shaun Rein, Founder and Managing Director of China Market Research Group and a widely-recognized expert on strategy consulting in China, has even found through his own company’s studies that Chinese consumers are also leery of Chinese-made products (food, in particular) and willing to pay a 10-20% premium for foreign brands they believe will be safer. Moreover, he rejects a McKinsey report to suggest that Chinese trust levels in domestic brands are actually at an all time low. Good news for you!

So, stay positive and read in more detail about the 10 things you should know about designing products for the Chinese consumer. We know that these can’t possibly cover everything you’ll need to know to succeed, but these lessons should provide you a great start.

The Longer Version

Many markets, many customer segments.
Do your ethnographic homework and market research.

China is big. Really big. And things of that scale make eyeballs widen and mouths salivate. But one thing China most definitely is not is a homogeneous country of 1.3 billion identical customers. If there is one thing you should know about China by now, this is it. The myth of selling your product to 1.3 billion customers has long ago been busted.

When foreigners think of China, they often imagine unity, consistency, and regularity… a predilection toward the collective over the individual. The truth is, however, that China is a complex collection of provincial, local, cultural, and social sub-markets, where local politics and cultural practices create major differences. Furthermore, the Chinese are far more self-interested and individualistic than you may assume. For centuries, there have been vast differences between the rural and the urban, between one province and another, but since Deng Xiaoping’s economic reforms began around 1980, the country has diverged along multiple dimensions as economic development, planning of special economic zones, and new wealth have been distributed unevenly, unfairly, and at differing rates throughout the country.

As cultural translator and socio-cultural researcher Lisa Yong of Y Studios in San Francisco told me, “Beijing and Shanghai are not China. It’s just not true. Just like New York and L.A. are not America.”

You’ve probably heard about Tier-1, Tier-2, Tier-3, and so on cities. But, few users of this classification system are ever very specific or consistent about which cities fall into which buckets (particular Tier-3 and lower), and most global companies have tended to focus on the richest Tier-1 cities first, then work their way down. Clearly, the Tier-1 cities consist of Beijing, Shanghai, Guangzhou, and Shenzhen (Hong Kong too, if you want to include this Special Administrative Region, though it differs from the rest of China in many ways). The Tier-2 cities tend to consist of the provincial capitals. Nonetheless, if you look at GDP per capita figures for these Tier-1 and Tier-2 cities (based on data from the National Bureau of Statistics of China), they range quite strikingly from Nanning — a provincial capital whose key industry is mining — with a GDP per capita of 15,685 yuan in 2007 ($2,062 US), while Shenzhen — a major electronics, high tech, and manufacturing center — has the highest GDP per capita among China’s cities at 89,814 yuan in 2008 ($13,091 US). Due to the policies of these special economic development zones and different regional industries, even among these Tier-1 and Tier-2 markets the differences can be significant.

Source: Artefact (click to enlarge)

What has happened in China in the past 30 years has been that many people, usually well-connected to Communist Party officials, have used their positions and connections to amass their family fortunes as privatization increased. The early entrepreneurs and business people also capitalized on new business opportunities. Real estate developers and speculators became some of the richest of these entrepreneurs. Others, opening new businesses, found their fortunes increase almost overnight. As stock markets opened, many played the markets and capitalized on the boom. What this has led to is a tremendous inequity in the distribution of wealth. There are the super rich, the nouveau riche, the poor rural folks, and now a large and growing middle class or

who are typically well-educated, white-collar professionals working for large companies. But, defining this middle class is somewhat controversial in China with no widely accepted answers, and the most typical estimates of the number of Chinese who are considered “middle class” ranges from 100 million to 250 million people. Some would go so far to say that the range might even be more like 50 million to 500 million.

One scheme for defining the East Asian Middle Class (EAMC) developed by Hsin-Huang Michael Hsiao and Alvin Y. So includes six classes in Chinese society, an elite capitalist class at the top, four classes representing the “middle,” and a lowest class of farmers and peasants:

An analysis conducted by Li Chunling of the Chinese Academy of Social Sciences, estimates that of the urban Chinese population in 2006 (577 million), 0.6% were in the Capitalist class, 18.8% in the New Middle class, 19.6% in the Old Middle class, 25.4% in the Marginal Middle class, and 35.7% in the Working Class. Presumably the remaining rural population (737 million) was lumped into the Farmer class. Again, one can see in the table below a tremendous range in incomes and distribution of wealth.

China’s GDP per capita as a whole was 18,934 yuan in 2007 ($2,490 US). The differences between rural and urban China are considerable, as you can see in the table above. Rural China, representing 55% of the population of the country, has per capita net disposable income of 4,140 yuan ($603 US) versus 13,786 yuan ($2,009) for urban households. In other words, urban Chinese on average have 3.3 times as much income as their rural counterparts, the differences being even more pronounced in Tier-1 and Tier-2 cities.

Lisa Yong admits that the differences between all of these “tiers” of cities was and still isn’t entirely clear cut. She sees the development of China’s cities occurring more organically, with often some of the most interesting things often happening in the heartland or the most unexpected places. For example, she claims that Inner Mongolia has been successfully growing its own regional brands in the food and beverage industry. The lesson here is that you will be facing competition from the bottom-up who are more in tune with the currently most underserved consumers.

Then, there’s the whole consideration of segmenting these markets. The major difference, beyond regional differences and income-level, is without question age. The urban youth generation (15-30 years old) are markedly different from their parents and elders, earning them the nickname the “rare generation.” We’ll discuss some of these differences in more detail later. Beyond, the demographic differences, you’ll really need to get immersed in the culture and do more proper ethnographies and user research to understand the more psychographic, motivational, and behavioral difference among these age clusters.

Finally, if you thought the Tier system was already enough to wrap your head around, now McKinsey Insights Asia is suggesting a new framework around city “clusters,” which they believe overcome some of the limitations of the Tier system, which relied primarily on GDP per capita. In this approach, 22 “clusters” have been identified, recognizing the linkages between neighboring cities in terms of industrial composition, government policies, demographic characteristics, and consumer preferences. The clusters tend to include one or two large hub cities, with groups of smaller cities developing in their vicinity, as seen below. One advantage in this model is that one can begin to understand how the value chains between businesses and industries link neighboring cities together, thus influencing their economic development as well as the social and cultural customs and trends.

Source: McKinsey Insights Asia (click to download report)

Do your ethnographic homework and market research.
What all the aforementioned implies is that in order to succeed in China, your business will have to invest continuously and intelligently in user research activities and ethnographies to understand the various segments you might wish to target. And, this won’t be easy. The Chinese people, in general, are less comfortable with the notion of user research and ethnography, especially when conducted by foreigners. Culturally, there is a suspicion of foreigners and their motives, ingrained for centuries as Western imperial powers tried and tried to open China up to trade, started the Opium Wars, and found numerous other was to offend, anger, and oppress a proud civilization. Certain topics (money, marriage, politics, etc.) may be taboo or considered rude or too personal for user interviews.

Experienced design researchers in Asia, like Elaine Ann from strategic innovation consultancy Kaizor in Hong Kong, says that many of the methods of user research taught in the West, at places like Carnegie Mellon or the IIT Institute of Design, don’t always work that well in China. Her advice is to approach things in a more personal way, by taking the time to establish a real relationship first. In other words, you’ll have to invest more time for many Chinese people to feel comfortable. And, because the Chinese are very concerned with how they are perceived by others, it can be disastrous to conduct ethnographies or research where people are being viewed by strangers or other “outgroup” individuals.

The best advice, of course, is to go there for yourself and really get immersed. See it with your own eyes. Have patience and work with locals to help build rapport with the people you want to research. Learn Mandarin (or putonghua) too.

You also want to make sure to research the right people. This might be confusing to some Chinese, who expect that you’d want to interview and observe the most senior people in an organization, say, as opposed to someone who works on the warehouse floor.

Knowing your customers and their needs is, of course, a basic principle of smart business. In China, the challenge is that the consumers are very different from place to place, by age, by income level, outlook on life, and by education level. Furthermore, Chinese consumers are still learning about their own needs and wants as consumers. So much has happened so quickly that they may not even know what want. And, what they like today might be different tomorrow.

Ian Donahue, a market research consultant at Anovax in Shanghai, explains some of the other unique challenges with understanding Chinese consumers. For example, language ability is not enough. Social identity theory is an important frame for understanding Chinese notions of ingroup and outgroup. Though fluent in Mandarin, he never moderates an interview because he is viewed as an outsider. He suggests further that even regional differences are critical.

“Always use local moderators, if possible from the same city,” he explains.

For example, going into a home in Shanghai for an ethnography with a Beijing moderator can be a problem. Like Elaine Ann suggested, one should also expect to invest more time conducting ethnographies than what might be needed in the West. As Donahue broke it down, the first hour will consist of a lot of resistance, confusion, and discomfort. “Why are you here?!” the participants will be wondering. However, with a skilled and charming moderator, possessing a good personality, and adept at building rapport, those barriers can be overcome in the second and third hour of an interview. At this point, participants will be more likely to open up.

Other tips from Donahue include using small teams for in-home studies. Chinese homes are small and space is a concern. Try to limit yourself to three people: a moderator, an observer/notetaker, and a videographer.

When interviewing younger people (age 15-29), expect their parents and grandparents to hover by closely and suspiciously. These children of the one-child policy — often called “Little Emperors” as they are the single pride and hope of their families — tend to be very spoiled and pampered. Their families are very cautious and protective of them. Therefore, make sure to show respect toward other family members. Allow them to sit in and participate, but respectfully try to keep the focus on the participant.

Although in complete agreement with the sentiments of Ann and Donahue, design research consultant Anjali Kelkar from the Studio for Design Research in Hong Kong, believes that with many younger, urban Chinese, it can be a little bit easier to make the connection that is critical to a good ethnographic interview. She bases this on her experience that many of these young folk are very curious, chatty, and eager to talk to foreign people and share their experiences. Admittedly, though, this sometimes requires either being or being accompanied by someone who is part of that right ingroup, someone who “belongs.”

Shuang Li, Principal UI Designer at Intuit, has many years of experience and perspective doing user research in China, as well as trying to import and teach good UI/UX and design practices for companies like Sina.com. She corroborates the general truth that the Chinese are somewhat taken aback when people want to know what they think. It is typical for a Chinese research participant to try to guess what they think you the interviewer want to hear rather than be open and honest. But, as she points out, this isn’t too different from conducting research in the United States, especially when getting paid for one’s participation is a primary motivator.

In addition, the fields of user-centered design and ethnographic research are still relatively new in China, and as a result, many of the local partners with whom you might work may not be as skilled or experienced as you might hope. It will be a challenge for you to keep protocols straight, practice good interviewing techniques, and impress upon your Chinese research partners to not view the interviews as unstructured conversations. Emphasize sticking to protocol, asking questions about why people behave as they do, not interjecting one’s own opinion, and so on. Finally, data are not always viewed by the Chinese as inviolable nuggets of truth. Culturally, there is a deeply-rooted history of manipulation of data in day-to-day life, government, and elsewhere. So, emphasize the importance of quality, objective data.

As Li puts it, usually “people don’t take them (data) seriously.”

For another perspective on the fudging of data and cooking the books, check out this piece from Shanghai-based business journalist, Jordan Calinoff. And, check out Thomas Friedman’s latest columns where he suggests that China could be the next Enron (note: I intimated something along those very lines in an off-hand Facebook status update on December 29, 2009, two weeks before Friedman’s column… just saying…).

To get rich is glorious.

The “proverb” above is a loose adaptation of Deng Xiaoping’s exhortation to his country to “let some people get rich first.” The Chinese have always been a mercantile society full of entrepreneurial spirit. After the devastation of their economy under Mao Zedong’s Great Leap Forward and Cultural Revolution, with Deng opening the country up to economic reforms, it became evident that the only leading ideology for the country as a whole was to “enrich itself,” as James McGregor points out in One Billion Customers. As China’s government policy shifted from wealth repudiation to wealth creation, the dismantling of much of the socialist safety net also left the average citizen with nothing left to trust in. Except for cash money.

Photo by: Evan Osnos, Artist: Tao Hongjing, Source: The New Yorker

Cash money

and the support of family are truly the only safety net the Chinese have. Despite decades of continuous strong economic growth, most Chinese feel less secure than before, as they are no longer guaranteed jobs, housing, and a pension. Consequently, as a society, overall, the Chinese are very thrifty, saving reportedly 40% of their income on average. The older generations are known for their frugality and extraordinarily high savings rate in order to provide for their child. Education is also no longer free, so parents who want their children to succeed in life must save as much as they can to invest in the child’s future and development, hoping they’ll turn out an exceptional individual. Meanwhile, the cost of living is increasing. Foreign goods are also subject to high import tariffs, making the shanzhai products even more attractive bargains. The “Little Emperors” are known to be spoiled rotten and be the “me me me” generation. They are crafty at getting money from parents and grandparents to spend on fashion, gadgets, and whatever else they desire. After all, they symbolize the singular hope for carrying on the family name.

Money and wealth and the material goods they afford translate to status and respect from others. This explains why many Chinese who have “arrived” like to flaunt their fashions, cars, or gadgets. For Chinese youth, the mobile phone is the largest consumer purchase they typically make. It is for them their most important symbol of status and freedom.

The high savings rate that the Chinese exhibit as a whole does not translate across all groups, however. The young, urban Chinese (15-30) are reported to essentially save nothing at all, as Pascal Nouvellon of COFIDIS explained to Shaun Rein of CMR in an interview last February.

As credit card penetration continues to expand, we might expect the hallmark frugality of the Chinese consumer to change, with younger people, more optimistic about the future and their prospects, choosing to buy on credit and accumulate more debt in order to obtain the material goods they desire.

Sources: National Bureau of Statistics of China, company websites, and other (click to enlarge)

Donahue describes every subway station in major cities having makeshift “kiosks” set up to get young Chinese to sign up for the newest credit cards. He describes these kiosks as regularly surrounded by dozens of young people, who are often enticed with a free gift as well.

As the chart above also shows, other forms of payment are taking off. While China is still primarily a cash society, Alibaba’s equivalent of Paypal, called Alipay, has increased its membership dramatically in the past few years. The Chinese have not always felt comfortable with the security of making transactions online, hence most e-commerce today is transacted as cash-on-delivery. But, Alipay seems to have garnered the young consumer’s trust, with accounts now exceeding 250 million. That makes buying things on Alibaba’s other property, Taobao (China’s version of eBay), a snap.

Shaun Rein firmly believes that e-commerce will continue to explode in China thanks to the proliferation of credit cards, Alipay, and the ability of consumers to shop not only from their computers, but from their Internet-enabled mobile phones as well. This phenomenon, however, will most surely be limited to the young, urban Chinese who are comfortable with this type of consumer behavior.

In sum, the young Chinese consumer is still single-mindedly optimistic about making it rich. Along the way, he/she is also becoming more sophisticated in the new ways of transacting commerce. The desire to flaunt one’s arrival will continue, and I would suspect that many young people (or their parents) will be soon learning the dangers of abusing credit limits. Already, a New York Times article cites that “about 11 percent of Chinese parents have paid credit card debts for children 22 to 27 years old, a group that has become accustomed to the good life but has found it difficult to pay for, according to a survey by the Beijing Youth Daily newspaper.”

Nonetheless, the emerging Chinese middle class mindset may now be that after letting some of the people get rich first, as Deng suggested, now the masses would like to “eat the emperor’s grain” too. Taking a page from American hip-hop culture, emcees from the growing hip-hop scene in China understand the brutal reality of an increasingly materialistic world. Wang Li, a 24-year-old rapper from Dongbei, says in a New York Times article that, “All people care about is money. If you don’t have money, you’re treated like garbage. And if you’re not local to the city you live in, people discriminate against you; they give you the worst jobs to do.”

Ingroup and outgroup /
Youth tribes and their elders /
Identity, lifestyle, and culture /
Seeking the good life

The challenge with the Chinese consumer is that there are so many different segments to consider. We think two of the most valuable distinctions to make are 1) between rural and urban Chinese, and 2) between the youth and their elders. However, below we will tend to focus the discussion on the latter: the differences between the “rare generation” and their parents and elders. What is their middle class dream? What do they want? How are they different? What is the good life that they are seeking?

Chinese youth and young adults under 30, to put it bluntly, are fundamentally different from their elders. They are typically only children (born under the one-child policy) who’ve grown up without experiencing major political turmoil (the Tiananmen Square Massacre perhaps one exception) during times of continuous economic growth and having relatively more freedom to make personal and professional choices. They are the pride of their families, often overindulged and spoiled rotten (“Little Emperors”), given the best of everything their families can give them, because their parents are investing all of their hope in the future success of their one child who will carry on their family name. These youth are ambitious, energetic, modern, individualistic, creative, and optimistic. They have attitude and personality, are savvy and complex, are proud to be Chinese, and are constantly experimenting with self-expression and identity through consumer choices. They have no instinctive aversion to borrowing or accumulating debt, like their elders. They are obsessed with the latest fashions and gadgets. Newness and novelty are important values to them as they want to keep up with styles. This means they can’t always wait to save up their money to buy the things they want. They have to buy them now, before it’s too late and they’ve gone out of vogue!

While highly individualistic and self-expressive, their desire to be “different” is not quite the same as in the West. As Ian Donahue explained it, Chinese youth socially tend to resemble the American high school clique culture. Social acceptance to a group, or tribe as I might call it, is critical. Being an independent renegade or loner is not desirable. Remember, these are also mostly only children, and to a certain extent there is a high degree of loneliness or isolation as they have grown up without siblings. They seek acceptance and companionship from others.

Influenced heavily by Korean and Japanese trends, as well as American products and styles, you will witness many different types of groups or tribes forming. Donahue mentions the two most apparent ones as the “Party and Club” group of youngsters and the “Young Professional” as another major group. The former tends to work just enough to pay for their night time lifestyle. They care about fashion, clubs, music, and socializing. They might convince their parents to buy them a nice car, or hit up grandma and grandpa for cash. They are not thinking a whole lot about their future and are not very responsible with their money. The Young Professionals, on the other hand, follow their parents wishes much more closely, focusing on making the right choices in school, career, etc. They are incredibly hardworking and have very limited social time. They work on the weekends if they need to, tend to be bottom-rung workers in large companies, and aspire to higher salaries which will eventually enable them to buy the luxury items they can display as symbols of their success.

But, some Chinese youth don’t necessarily view these young professionals in the most positive light. Qi Fei, a 25 year old graduate student from Dalian, says that a lot of people think that these members of the are an “embarrassment.” They work very hard at large companies, but are at the bottom of the hierarchy, and don’t have much money compared to the entrepreneurs or people with their own companies. To make matters worse, they have very little time for much of a personal life.

Of course, there are many other youth segments to consider, including the Sporty/Jock types for example, who might embrace an entire culture around sports and a brand like Nike, which invests heavily in creating and marketing a culture around their brand and products in China.

Another popular word in Chinese is , meaning “petit bourgeois.” If you ask a Chinese to describe such a person, you will almost universally hear them described as young, single, urban women under 30, fond of Starbucks coffee and Häagen-Dazs ice cream, who typically spend 1/3 of their income on bars and restaurants, 1/3 on shopping for brand-named clothing, have an aversion to saving money at all, love watching European art performances and listening to Italian violin, and have Van Gogh paintings hanging on the walls of their apartments. They appreciate the value of design and lust after the latest trendy foreign products (iPod, Miss Sixty jeans, Gucci, Chanel), but have to save up for some time to be able to afford one or two of these luxury items. These women seem to enjoy the experience and atmosphere of being out and about in expensive clothing, sipping coffees, and view themselves as rather elegant. But, the term is also used somewhat disparagingly by other Chinese youth.

Yu, Chan, and Ireland’s identification of four “personas” among the urban youth of China (from China’s New Culture of Cool), included: 1) Ding Li, The Playgirl, 2) Wang Liang, The Striver, 3) Chen Hong, The Modern Conservative, and 4) Li Hua Min, The Rule Breaker or those who are sometimes called the or “hooligans.”

There are some clear consistencies between Donahue’s more general assessment of the youth market and the Cheskin team’s four personas. The Playgirl and Rule Breaker tend to cluster with the Party and Club-going tribe, though the Playgirl tends to be a younger teenager, working a low-end job in something like retail, interested in friends, boys, fashion and shopping. She aspires for luxury items in her life eventually, though she doesn’t think a whole lot about the future yet. The Rule Breaker is usually older, perhaps not having succeeded in entrance exams for the university, and now leads more of a hardcore party lifestyle at night, drinking, dancing, listening to deejays, etc. He gets money from his family to support his lifestyle. He might look more like a “street punk,” with dyed hair, tattoos, and piercings. He sleeps in late and gets up in the afternoon to hang out until he parties the rest of the night. Both of these groups/tribes/personas are similar in that they will have a unique set of preferences, styles, brands, and definitions of what’s “cool” or fashionable.

The Striver and the Modern Conservative might cluster together into the Young Professional segment described by Donahue. The Striver is a young professional, very hardworking, ambitious, and aggressive. He is driven by attaining fame, power, and money. He wants a cool car to reflect his status and is passionate about technology and gadgets. He spends a lot of his free time on his computer, watching movies and listening to music (mostly free or bought on pirate discs on the street), playing games, and reading about and engaging socially online in his passions. His mobile phone, as with all the other young people in China, is his most essential tool and symbol of status when away from home. He strives for the good life that he believes is possible through the formula below for achieving success (primarily among those in the Tier-1 and Tier-2 cities):

The Wu Zi (“5 Zi”): Aspirational motivators for the Chinese middle class (typically, male) dream, Source: Anovax

As you can see, this is clearly the more male perspective on what constitutes the good life. In a country where there are 40 million more men than women, these young men are actually in serious competition to achieve their version of the Chinese dream. Many feel a great amount of pressure to earn enough income, own a nice car, and have a house before being considered eligible or desirable for marriage.

The parallels between this perspective from American hip-hop artists to the new Chinese hip-hop artists is incredible. The perceived keys to male middle class (heterosexual) success are seemingly identical. Compare Young MC’s lyric from his popular hit “Bust a Move” to the freestyle rap of Wang Li of Dongbei, mentioned earlier:

“Got no money and got no car, then you got no woman and there you are.”
— Young MC

“If you don’t have a nice car or cash
You won’t get no honeys
Don’t you know China is only a heaven for rich old men
You know this world is full of corruption
Babies die from drinking milk.”
— Wang Li

On the flip side, there is also a growing trend of female empowerment in China. Many of these young women are interested in savoring life and the things you can buy and not particularly interested in having children.

The Modern Conservative is similar to The Striver in terms of her desire to achieve professional success. She is socially more conservative and reserved, and possibly more likely to be one of the so-called “Little Emperors.” She is under tremendous pressure to please her parents and live up to their standards, but though she studies and works hard, she may not want to be competing to the be the very best. She wants to live a rich and fulfilling life, which she defines differently from her parents, where she seeks more balance, though she may be too reserved to admit this to them. She follows the rules and tries not to stand out too much, but she values her personal freedom to choose a career and eventually choose to live however she likes. She is less likely to want to have children, though she’d like to be married and lead a life of balance between work and personal leisure and travel.

These are just some of the few segments beginning to describe the large and complex group of 327 million young people in China. These “tribes” form their own unique social cultures, where the products, fashions, and styles they strive for tend to be more consistent within the ingroup. However, as a rule of thumb, brand loyalty within these tribes is very low in China, because all brands are new. And since the young Chinese especially are constantly searching for the next new thing, they can change their loyalties very quickly.

As another peripheral example of the type of sophisticated segmentation happening in China, Jessica Liu — formerly vice general manager of Sinomonitor International, now Research Director of Media at Synovate — in one study segmented just the most affluent of Chinese consumers into no fewer than five groups, including such segments as the “Modern Butterfly,” the “Peacock” and the “Laboring Bee.”

Yong warns that the challenges of defining and segmenting your customers will be a real challenge. ”There’s so much gray area, so you need to put a lot of effort in,” she says. She says that the labels are nice but hard to do well. The boundaries are blurry and everything is becoming more and more interconnected within China and between China and the rest of the world. As she puts it, “Some parts of China are looking more and more like Hong Kong, Taiwan, or Japan even. So, where is the real China now?”

Again, the message is clear: you can’t really know and understand China and its people until you go there and see it and them for yourself.

Ancient Chinese proverb

The one thing that is true for all of these young people we’ve been discussing, however, is that they are on a continuous quest for identity and self-expression. They are young adults still figuring things out and are changing rapidly. They are all hungry for novelty and increasing their exposure to the rest of the world. With this group, you can’t, for example, sell them into a 2-year contract for a mobile phone (which Apple is learning the hard way), because none of them can imagine keeping a phone for that long, not to mention that culturally the Chinese prefer pay-as-you-go methods for service and data to monthly subscription plans. Incidentally, the Chinese are also known to save up and spend a lot of money on a fancy mobile device, but they can be quite cheap when it comes to paying for texting and data plans.

As an aside, you often hear about the amount of texting and IM/chat that the Chinese do, but do not be fooled when you hear all the big numbers. Our analysis below shows that Americans are far more prolific texters than the Chinese. Why? Most likely because we are more inclined to purchase unlimited text and data plans. The Chinese generally seek to avoid paying for services like that as much as possible. And they are accustomed to finding ways to evade paying for things that can be gotten through pirated means or through cheaper alternatives. Hence, they are much more prolific users of IM/chat, like QQ, than they are of text messaging.

Sources: CNNIC, National Bureau of Statistics of China, CTIA, and US Census Bureau

I think we can all agree then, at this point, that China’s urban youth (15-30) are and will become a unique and transformative force, vital to spurring consumption in the Chinese economy. And, in doing so they will also lead social and cultural changes as they exercise their significant collective purchasing power. The key to success, according to Donahue, is that these young consumers need to be able to understand how the products marketed to them are beneficial to and fit into their lives and the lifestyles they want to lead. Otherwise, they will just be passing fads.

So what about their elders? The older generation of Chinese consumer (35 and up) remember a time when they had next to nothing and few if any choices. While they are excited with the quantities and varieties of foods they may find at a hypermarket, they are generally struggling to understand all the new products and brands which they’ve never had a need for before. Consequently, they are very resistant to change or experimentation with new products. They feel that their lives are good enough, and their interests are in providing for their child. Raising a child has become more expensive, college tuition is expensive, and their child has many wants and needs. They may wish to spend extra money on developing a talent in that child (music, sport, etc.) in the hopes of making him/her a more exceptional student who will succeed in entrance exams and pursue and education leading to a good career. Children in college rarely get part-time jobs, and if they do, they tend to be low paying ones. Entry level jobs after graduation also are low paying, so parents frequently support their child with housing costs, and especially for a male child by buying him a car. The net result is that this older middle class demographic is extremely challenging to market to.

Qi Fei, the graduate student from Dalian, says her father is not at all tech-savvy and is frequently overwhelmed with technology. When she left Dalian to go to graduate school in Chicago, she strived to teach him to use MSN, video chat, email, and the computer in general so that they could communicate. But, today he still struggles with these technology products and wouldn’t dream of buying something online. On the other hand, his generation is very happy about the options they now have in clothing, shoes, and accessories.

As Qi explained, “Almost all technology products are geared toward young people. I don’t believe manufacturers are doing a good job at selling to people like my dad and providing them support. They always feel frustrated so they don’t use these things actively.”

For many of the older generations of Chinese, now confronted with more consumer choices than ever before in more areas of life than ever before, they are simply poorly equipped for making confident decisions in the face of overwhelming options. This is a potential source of stress and confusion that product developers and marketers should be sensitive to. For example, consumer advocacy, information resources, and peer review and filtering resources could be of tremendous value to these consumers. That is, if they are willing to adopt the technologies that offer such resources.

On the other hand, another graduate student from Beijing, Ye Pinxia, says that it’s easy for the older generations to make choices: they just compare prices and get the cheapest one. She shared with me another story about how she and her mom went to the big electronics marketplace to get her a new mp3 player because the CD player she’d been using for 8 years had broken. While Ye urged her mom to get something cool and fancy, her mother was unmoved by the thousands of choices, features, and designs. She wanted something that played mp3s, had a radio, and was cheap. End of story. After comparing prices among many vendors, she got a non-descript device for 140 yuan (about $20). Ye is pretty certain it’s a shanzhai product too.

As we mentioned before, traditional Chinese attitudes toward saving are deeply ingrained. Among the older generation, who are used to using cash almost exclusively, you always save first and then spend. Qi feels that the notion of buying on credit is actually quite foreign to many older Chinese, in fact, and that too many people have limited knowledge of how credit cards work. She knows people who have used credit cards for a few months and then cancelled them after too many unexpected charges. Chinese banks in general have not been very customer-centric, and there may still be a lot of mistrust among consumers when it comes to credit and other banking products.

In terms of associating products with particular lifestyles or cultures, the older generation are less likely to be swayed by the designs of modern global brands, which younger generations tend to associate as being cool and different. For Ye Pinxia, a Macbook or Apple product is cool, not just for its design but because so few people in China have them. Even with her cell phone, she does research on which stickers her friends have placed on their phones to make sure she doesn’t end up getting the same stickers. However, for Ye’s mom, she finds the products which appeal to more traditional Chinese styles more appealing. Mom recently told her that an HP laptop skin designed by a Hong Kong designer with a huge Chinese flower and lots of red and gold ornaments was her favorite.

In the end, China’s urban youth tend to be more interested in brands and products that project a lifestyle or image they’d like to identify with or aspire to, something new and exciting, and not necessarily purely about traditional luxury or status-oriented brands. With the older generation, the traditional values, colors, designs, and brands with strong reputations tend to be more appealing. But for all, being a savvy shopper will become an essential life skill.

When all is said and done, though, each type of consumer will have his/her unique set of preferences and needs. As the ancient Chinese proverb goes:

Ancient Chinese proverb

**Competition: national pride and national brands + the shanzhai industry**

At its core, Chinese society is all about self-interest. It is very strong on competition but very weak on cooperation. Despite its admission to the WTO in 2001, China still hasn’t quite gotten its act together in terms of respecting intellectual property rights. Historically and culturally, they just have never had major qualms about stealing ideas.

Commenting on the current situation with Google and the Chinese government, Oded Shenkar, a professor of business management at The Ohio State University and author of The Chinese Century, stated in a New York Times piece that, “The U.S. is the world’s greatest innovator and China is the world’s greatest imitator.”

Shuang Li has witnessed in the past 8 years that Chinese companies are taking the influences of product design from Japan, Britain, France, and other countries, but starting to design their own unique versions and takes on them to better suit the tastes of traditional Chinese culture. However, in the realm of software and user interface design, she feels they are still mainly imitators with a lot to learn. Her experience trying to instill good human-computer interaction (HCI) principles at Sina.com was frustrating. ”People here like these things, the cartoons, small animations, lots of blinking… but in the past few years they are picking up and starting to build serious applications, for banks and real estate companies, and they are drastically improving.” Nonetheless, she says if you compare two bookstore websites like Amazon.com with Dangdang.com, you’ll see many violations of basic HCI principles in the latter. It will take time for the domestic brands to learn.

In James McGregor’s book, he also is pretty brutal about the fact that your technology, trade secrets, designs, and know-how will be stolen and/or copied (and probably even get to market first). Guaranteed. China, he says, is not the legalistic society that typifies the West. If a Chinese wants to do something, he will find a way to skirt the rules or laws.

Any technology company doing business in China should assume that its designs and products are being copied. China’s tech sector is built on reverse engineering foreign products.
— James McGregor

But, don’t forget lesson #7 about the tremendous national pride of the Chinese. They do not wish to be the world’s factory any longer. They do not want their consumers to embrace and adopt only global brands. As they learn and modernize and their economic power continues to grow, China is fully intent on building and growing its own national brands to compete globally. Few are well known at this point, besides Lenovo and Haier. But there are major competitors growing domestically in China, like Huawei which is beginning to rival Cisco. And China has been working hard to create their own microprocessors to feed their tremendous demand for computing power.

In other industries, China is even taking a lead, like new, clean energy technologies, for example. There’s an excellent piece by Evan Osnos on their 863 Program in a recent New Yorker article.

Another rising domestic brand in China is Li Ning, a sporting equipment and apparel company that is taking on Nike. In my conversation with Ian Donahue from Anovax, he explained their successful strategy of targeting the lower tier cities first by offering products with styling and looks reminiscent of global brands like Nike but at a fraction of the cost. They are now one of China’s most well known and well regarded brands, working their way up from the lower-end consumers and now hoping to challenge Nike head-to-head in some Tier-1 and Tier-2 cities.

Of course, Nike’s response or approach is to do what they always have done: emphasize their technological advancements and superior features which distinguish their product, and do a heck of a job marketing themselves. But, Nikes are affordable only to the richest of the Chinese consumers. Nevertheless, they’ve done a remarkable job of creating a community and a culture around their brand. And, as mentioned in lesson #5 above, Chinese youth are drawn to aspirational products and brands that they can identify with, products that evoke a lifestyle, culture, and identity.

Will more Chinese brands become dominant global players? Yong believes that the Chinese are confident that there will be a “homegrown Apple or Microsoft eventually.”

The fact remains, however, that the Chinese consumer on average, is still relatively poor by Western standards. Based on the National Bureau of Statistics of China’s 2008 Yearbook, this is what the breakdown of urban household consumption was per capita in 2007. The data are broken out into 7 groups: the poorest 10%, the second poorest 10%, the 2nd quintile, the 3rd quintile, the 4th quintile, the second wealthiest 10%, and the wealthiest 10%. Keep in mind, also, that the average urban citizen earned 2.6 times as much as the average rural citizen, while consuming 3.6 times as much on personal household expenditures. As a result, the amount of consumption by rural folks on many of these consumer categories are incredibly low. I’ve converted to US dollars to give you a better sense of the relative difference with American citizens.

Source: National Bureau of Statistics of China, Analysis by Artefact (click to enlarge)

Since we at Artefact are particularly interested in technology products, we then broke out the “transportation and communications” category for urban households. Keep in mind that as of 2007, automobile ownership was quite low overall for China with about 6 cars for every 100 urban households. For the high income urban households in the 9th decile, there were nearly 12 cars per 100 households. For the highest income urban households (10th decile), there were slightly more than 25 cars per 100 households. We were unable to break down the data in the “transportation and communications” category to any more granularity, but let’s see how the numbers turned out:

Source: National Bureau of Statistics of China, Analysis by Artefact

As you can probably conclude from the chart above, the average Chinese urban consumer is not currently spending a whole lot of money per year on transportation and communication products or goods. Cars and electric bikes aside, even mobile phones are hard to come buy for $131 if you are in the middle class. Mobile phones in China are not subsidized by carriers; consumers must pay full retail prices. Suddenly it becomes a little easier to understand why buying a $300 or even $500 mobile phone is a major expense.

And, thus, shanzhai products come in to fill a market need for more affordable technology products (or fashion, shoes, etc.). Get something that looks more or less the same, works more or less the same, has the same features, but costs half the price or less.

Literally, “mountain stronghold,” but it has come to mean the pirated or knockoff goods, especially electronics, made by those who operate far from official control.

For the aspiring middle class consumers, fake products are just fine. Sometimes they’re even better than the real thing. Li describes the typical Chinese consumer decision-making process as follows:

Is someone else using it?
Can I afford the full price one?
Is the fake alternative available and being used by lots of people?
If so, I can get a fake one and not lose face since so many other people have them.
Finally, for small electronics, phones, and watches, often the more features there are, the better. Because, culturally, people like to show off the bells and whistles.

Another reason why Chinese consumers are generally okay with shanzhai products is that “getting a good deal is important in the culture. It shows you are an intelligent, savvy, smart shopper.”

So, Chinese consumers do not have big hangups about pirated or fake products. And fake everything is available around every corner, in more styles and variations than you can possibly imagine.

According to Shaun Rein’s firm, CMR, they estimate that as many as 3.5 million Chinese consumers have at one point owned an iPhone. He contends that 2 million real jailbroken iPhones were smuggled into China before China Unicom’s debut of the phone on October 30, 2009. Many of the real ones already resold on the secondhand markets. Meanwhile, China Unicom’s predictions of 5 million handset sales in the first few years is looking unlikely, as supposedly only 5,000 have been sold. The reasons for this have been explained above, but basically can be summarized as Apple and China Unicom didn’t really understand their target consumers and their needs and preferences.

But besides the jailbroken iPhones in China, there are the HiPhones, iPones, iPhone Airs, iPone Airs, and hordes of other shanzhai phones trying to capitalize on the appeal of the Apple brand and product, with some estimates as high as 10-13 million so-called “iPhones.” Here’s a gallery of a small sampling of fake iPhones and other shanzhai phones. Or someone proudly showing off her “shanzhai iPhone and iMac” (sic).

And, it only takes a small workshop with 5-10 people to produce these devices. They’re all over Shenzhen, within 100 miles of all of the suppliers the “real” phone companies are using. So, they just buy the same parts and assemble and modify them into all kinds of strange frankengadgets. By avoiding taxes, these little enterprises can sell shanzhai devices very cheaply and still make a handsome profit.

Gartner estimates that more than 20% of phone sales in China are shanzhai devices. So, not only are these products competing with foreign global brands, but with legitimate domestic Chinese brands as well.

Moreover, the shanzhai industry is exporting their wares too, in large numbers. Their biggest destination is India, but they also export to developing countries in Eastern Africa, Asia, and Latin America. iSuppli estimates on the number of “gray market wireless handset shipments” have grown from 37 million units globally in 2005 to 145 million units in 2009, with growth expected to continue. They anticipate 192 million fake phones shipping worldwide in 2012. If you combine those figures with Gartner’s figures on global handset shipments, you’ll discover that 4.53% of all mobile handset shipments in 2005 were shanzhai phones. In 2008, the proportion increased to 8.64%.

That means that all together, shanzhai phones had about the same market share as LG or Sony-Ericsson!

And, it’s not just phones, laptops, purses, or sneakers. According to the Annovax website, Microsoft estimated that 82% of their Windows operating systems being used in China in 2007 were pirated. Counterfeit products are produced in every product category, from engine lubricants to mobile phones to food and beverage. Even shanzhai tissues… for your nose.

The better your reputation, the more likely you are to have your products counterfeited.

Of course, to look on the positive side, one interesting aspect of the shanzhai industry is the entrepreneurial spirit and creativity of young Chinese individuals or small groups of individuals. It makes one wonder if they could potentially take their DIY approach and legitimize it and cater to more demanding niche audiences making customized or bespoke gadgets? Think the Long Tail.

Lisa Yong, in fact, believes this is the next logical step for the smart and progressive entrepreneur. To evolve their design process into one that becomes a highly customizable experience for the brand or the product. ”Not unlike the modding scene in the US for computers, laptops, or cars,” she says. The beauty of all of this, she believes, is that it is all happening organically, from the street, the bottom-up, with these small workshops in Shenzhen or with other entrepreneurial business people who want to co-opt what’s out there and make it uniquely their own.

Bottom line for you: your stuff will be stolen, copied, imitated, and possibly even improved on. And, that’s not likely to change any time soon in China.

In the Internet, They Trust

As mentioned in the short version, the Chinese have a general distrust of media. To most, government media and ad-supported media channels simply lack integrity. Every advertiser claims that the product they are pitching is cool and fashionable. But this can’t possibly be, so the Chinese consumer has been for years relying on the Internet as a primary source of trustworthy information.

In fact, the China Internet Network Information Center (CNNIC), in their 24th Statistical Report, indicate that trust in the Internet is high: “84.3% of Internet users believed the Internet to be the most important information channel.”

Because the government monitors Internet sites and frequently censors or shuts down sites (check out if your website is blocked by the Great Firewall of China), most Chinese are leery of sharing too much about their identity online. For this reason, good old bulletin board systems (BBS) have been the tried and true forum for people to connect and share information with one another. It is estimated that there are more than 3 billion user accounts on BBSs in China, with 338 million Internet users. That’s almost 9 accounts for every user. The popularity of BBSs stems from the fact that most accounts can be created anonymously.

Ye Pinxia says that she is constantly on the Internet. When she wanted a new mobile phone, she went online and read several articles where people described their experiences. She cared about a good user experience, a device that was user-friendly, had good build quality, and an acceptable price. Her typical search begins on Google or Baidu, then she narrows down by price range, and then begins to drill down on specific models, reading reviews. After sufficient research, she decided on a Motorola model, headed over to Zhongguancun in Beijing, visited several vendors to compare prices and bought what she had decided on, without any problems at all.

Photo by: onion83, http://www.flickr.com/photos/onion83/2681946555/sizes/l/

Her experience is probably typical of most young, urban Chinese consumers, however, Ye says her parents’ generation doesn’t do much research online for product information. They simply don’t have the know-how. Qi Fei also adds that most young people don’t pay attention to TV commercials, but their parents’ generation relies on TV advertisements a lot more as source of information. Both young women say they don’t care much for newspapers as sources of information on consumer products, but magazines can be excellent sources of information and images for inspiration, for things like fashion. However, as much of that content is moving online, they are more likely to seek such content on the Internet.

The Chinese are also big bloggers, even finding the courage to express themselves somewhat freely online. According to some slightly dated statistics from CNNIC, by the end of November 2007, there were 47 million bloggers and 72.82 million blogs in China, which represented nearly 25% of all the Internet users in China at that time.

Social media usage has been on the rise as well. Facebook has been regularly shut down in China and user numbers are dropping to 1-1.5 million. However, Renren.com (formerly Xiaonei) is a Facebook clone with 40 million users. Kaixin001 has 30 million users. 51.com has 130 million users. And Baidu (search engine) is used by 110 million people.

Twitter has been completely blocked. However, there are plenty of Twitter clones: Taotao from QQ has over 50 million users. Fanfou, Jiwai.de, and Digu are also popular. However, these microblogging services have also been prone to being shut-down by the government.

Despite the regularly shutdowns and censorship, Shaun Rein sees consumers being increasingly influenced by digital and social media marketing as a trend for 2010 and beyond. This is a critical consideration for your marketing budget, particularly because, as mentioned before, the average Chinese person uses the Internet 18 hours a week versus only 12 hour a week by the average American. The young Chinese consumer is not generally interested in TV or print, like American consumers.

For the average Chinese person, the Internet has opened up their world (when not censored) immensely to discover infinite new things, people, products, cultures, and news.

Despite all the positive benefits of Internet access in China, Anjali Kelkar also points out that use of the Internet as a way to alleviate social isolation and loneliness is becoming a concern for some of the only children of China. These children rarely have cousins even, since their parents were also only children. They spend vast amounts of time online, seeking companionship and friendship, frequently through online multiplayer gaming, chatting, or other social media. While certainly not a problem unique to China, there are some who are concerned with the amount of isolation and time spent online, and the possibility of it eventually leading to future social and psychological problems among very active users.

Finally, Shuang Li doesn’t necessarily believe that all people invest all their faith in the Internet. In her view, China is “still very much a word-of-mouth society from those you can trust.” In that regard, however, she believes that blogs and other social media tools can help amplify this word-of-mouth effect.

Transitioning from Goods to Services and Experiences:
Food / Style / Living / Mobility / and more…

If you are familiar with The Experience Economy, by Pine and Gilmore, they introduce the notion of a pyramid of economic value creation, that they believe is evolving because technology, increased competition, and increasing expectations of consumers has led products (in the generic sense) to become commoditized. For the most part, in the West, they would argue that we are experiencing the evolution from a service economy to an experience economy, where consumers demand more than just someone else delivering the goods/services they want to them at a reasonable price. They are now demanding entertainment, education, engagement, or enlightenment from their consumer experiences.

The Economic Pyramid, Source: The Experience Economy, by Pine and Gilmore

China has rapidly moved in the last three decades from a commodities and goods economy to the beginnings of a service and experience economy. As consumers’ incomes increase, they will evolve up this pyramid in terms of the “products” they will want and expect. According to Bureau of Economic Analysis data from 2008, personal consumption by Americans is split about 33.6% on goods and 66.4% on services. In China, the distribution is more or less the opposite; they still have relatively low incomes so most of their spending is on basic needs like food, clothing, shelter, etc. National Bureau of Statistics of China reported 9.33 trillion yuan of total household consumption in 2007. It is somewhat difficult to break out how the expenditures were distributed between goods and services, but our best estimate shows an overall split of 86.3% on goods and just 13.7% on services.

Of course, the rising middle class and wealthy urban consumers are not just buying luxury and expensive goods and products, but they are now beginning to pay for services and new experiences. This will be an area of tremendous economic development for the Chinese economy.

In terms of the product landscape in China, Qi Fei believes that Chinese manufacturers still have a long way to go in terms of service and support for their products, one of the reasons why she tends to prefer American or European products.

Yu, Chan, and Ireland, in China’s New Culture of Cool, identified four key areas where the upwardly mobile young Chinese consumer will be evolving his/her consumption. It is in these four opportunity areas that the demand for new services and experiences will be experiencing some of the most rapid changes and developments. These four areas are in: style, food, living, and mobility.

Four domains of opportunity for the young, urban Chinese consumer
Source: China’s New Culture of Cool, by LiAnne Yu, Cynthia Chan, and Christopher Ireland

I would add that health, wellness, and financial management will also be areas of opportunity for these upwardly mobile young consumers. Of course, one could easily include these in the Cheskin folks’ categories of food and living.

What are some examples of these new services and experiences that young Chinese consumers are demanding?

In “style,” beyond the fashion and accessories are services like beauty salons, beauty consultations, cosmetic surgery, grooming and personal care services, and spas.

In “food,” the big thing is people eating out. Food is a central focus of Chinese culture. Now, with the exposure to cuisines and influences from the outside world, consumers are curious about experimenting with new flavors, ingredients, and eating experiences. Of course, entrepreneurial Chinese are also taking this influences and fusing them with traditional Chinese elements to create new types of cuisines (part of the larger “China Style” trend). In addition to restaurants, there are coffee shops, bars, and quick convenience food destinations or carts. Restaurants are places to be seen and to people watch, much like shopping malls. China’s social life is expanding beyond just the street.

In “living,” as China’s citizens have transitioned away from government provided housing to having to rent or buy their own properties, there has been an explosion in the home furnishings and decorating industries. Unlike the U.S., homes in China are typically bare when purchased, just empty shells awaiting the owner to provide the flooring, lighting, appliances, wall treatments, etc. As home ownership increases and home-owners seek ways to personalize and individualize their own environments, retail sales of appliances, materials, tools, furnishings, and other home-related goods are booming. But, along with that there should be increased service offerings around interior decorating, home repairs, contracting, plumbing, home theater installations, and other maintenance. Cable/satellite TV and Internet services will increase. And other aspect of living, outside the home, will boom, including exercise, gym memberships, yoga, adventure seeking, travelling, entertainment, and other types of leisure activities.

In “mobility,” the two primary objects around which mobility revolves are the automobile and the mobile phone, both of which provide personal freedom. Auto owners are enthusiastically joining driving clubs and communities around particular vehicles or brands. Auto repair and customization services should be expected to grow. Other forms of mobility taking off (besides the ubiquitous bicycle) are electric bikes, some of which are low or no emissions vehicles. Travel and adventure are another new opportunity for Chinese consumers, who are more easily able to leave their own province and explore the rest of China, or leave China entirely to see the world. In terms of the other key object representing mobility, the mobile phone has become a prerequisite device for China’s youth, enabling them social freedom, entertainment, or even business or productivity needs. Laptops are also fairly ubiquitous among university students, though computer penetration overall in China is still relatively low. Because mobile phones, however, are rapidly penetrating the population, they are becoming the conduit to the Internet and new opportunities for entertainment, services, and communication needs.

Another important area of future development of services and experiences will be around all matters financial. As the Chinese consumer’s income continues to rise, as home ownership increases, as credit cards begin to further penetrate the population, and as the current excitement over spending on goods wanes and consumers mature, young Chinese and old alike will be increasingly looking to financial, insurance, and investment products to help them manage their money and plan their futures, and the futures of their children if they choose to have them.

Currently, most Chinese consumers have a fairly low knowledge of finances, investments, banking, credit cards, insurance, etc. They will need to be educated as they become more sophisticated and wealthier consumers. Smart businesses offering these services will also need to understand their distinct customer segments and their needs and concerns well, in order to develop the products, services, experiences, and communications that consumers will identify with and understand how to incorporate into their lives.

Conclusion

Trying to summarize China’s development and emergence as a superpower and consumer powerhouse is a daunting task. There’s simply too much to cover. You’ll probably note that we omitted many trends and issues that are by no means any less relevant than those presented above. For example:

the aging population and declining birth rate leading to a potential demographic crisis decades ahead
the environmental catastrophes that have resulted from a belated rush through industrialization with little regulation or concern for ecological consequences
possibly looming credit and housing bubble crises
new lust for automobiles
music and pop culture
politics
the fact that China is soon to be the largest luxury market (their wealthy consumers really love their Gucci, Louis Vuitton, etc.)
rapid urbanization and the potential social problems inherent in large numbers of less educated migrants shifting en masse to urban centers looking for work, how they will adapt, communicate with family back home, etc. (check out some of McKinsey Global Institute’s many fine reports on the subject area, including their prediction of 1 billion urban people by 2030)
an increasing rich-poor gap
education in China: is it still too rote-memorization modeled? will they produce the great designers and innovators of the future?

Nevertheless, we think the 10 subject areas we presented above, in both the more digestible and the more bloated forms, should provide American and Western business leaders, designers, product developers, and anyone else interested in the Chinese markets with some useful background, guidance, and things to think about.

One of the challenges inherent in trying to capture insights about the Chinese market and its consumers is that anything you learn today may not be true a year or two from now. But, don’t let that deter you. It should be an exciting opportunity for continuously learning and facing new challenges.

In addition, don’t forget the “heartland” of China beyond the Tier-1 and Tier-2 cities. These are cities where people have less purchasing power, but are also eager to strive for the quality, empowering, and well-reputed products of the West. It is in these smaller cities and towns where you’ll really face the competition with China’s rising domestic brands.

It’s going to be an exciting decade to come for China, that’s for sure. You’ll see global companies try to bring innovative products to the growing consumer class, but they will need to shed a lot of their assumptions, put in their due diligence, truly immerse themselves in the country, the people, and the cultures, and adapt to one of the most rapidly changing and exciting markets in the world.

Simultaneously, you’ll witness innovation and new ideas and products emerge from China itself, from the bottom-up especially and maybe even from the top-down. Global manufacturers need to think about how they can help empower Chinese consumers, harness their creative drive and entrepreneurial spirit, develop product platforms and remixable/mashable elements that consumers can use to customize, personalize, and make their own, to add their own Chinese essence to.

They should also be thinking about how to improve customer and user experiences as their marketplaces become overwhelmed with products and services ranging from the totally crappy to the totally genius. Consumer-empowering tools and online community-based product reviews and peer-filtering tools across many product categories (cars, technology, home furnishings, fashion, personal care products, music, etc.) will be vital to equipping the Chinese consumers, old and young alike, with better decisions and choices about the products and services they incorporate into their lifestyles. These are likely to be online tools and services, accessible via mobile Internet devices, and other types of products that are currently on the cutting-edge, but they will need to be adapted to the unique customs, cultures, and needs of a dynamic and diverse populace.

And, of course, the Chinese are keenly aware of the ascendance of design as a key differentiator in many product categories, including electronics, fashion, shoes, financial management software and applications, life management tools, health monitoring devices, products providing food and medicine safety information, products for the elderly, credit cards, and more.

If you actually made it this far, congratulations! Please be kind enough to share you comments, thoughts, and criticisms with us, as we hope to continue expanding our knowledge on this most fascinating topic. Cheers!

Dear Mobile Manufacturers, Show Me a Truly Connected World – An Open Letter

by Kevin Wong, posted October 19th, 2009
categorized under featured, mobile, trends | Comments

23clic.600
[photo: movies.nytimes.com]

The following is a result of a dialog between Gabriel Biller and I, Kevin Wong, who are both researchers at Artefact. Mobile manufacturers have put into people’s hands a device that unlocks information and connects people with each other. There is one question though, and that is:

what about connecting our phones to everything else?

Our intention is to share our thoughts and understanding of the marketplace for the sake of advancing conversation towards a connected world for everyday people. It all started after an IM chat the other day…

Kevin: Hey, Gabe. You know what’s annoying?
Gabe: What is it this time?
Kevin: Last week, I was at my sister’s. And she was showing me photos of my niece’s recital from her PC upstairs, using Apple TV connected to her big plasma. And I was, like, oh my god, I need to show you some photos of Lauren from the last time I was here that I haven’t showed you yet. They’re on my iPhone.
Gabe: And?
Kevin: Well, let’s just say there was no obvious, quick, and easy way for me to do that. I couldn’t do it, and I’m usually pretty good with these things. You’d think an Apple TV and an iPhone would easily allow that kind of sharing.
Gabe: Hmmm… that is one rotten apple.
Kevin: Why do they even call it a phone anymore anyway?
Gabe: Good point. It’s basically barely even a phone anymore… at least, not primarily. It’s a mini computer, my Internet-enabled sidekick, my trusted friend… they should call it an “also-a-phone.”
Kevin: An AAP? Ha! An AAP loaded with apps.

So, what’s the problem?

Despite the digitization of many devices and appliances in our everyday lives, very few of these devices can communicate with each other. The Internet-enabled smartphone, with its array of communications antennae, is poised to enable us unprecedented ability to monitor, manage, and control devices and systems that are communications-enabled. But if you look around today, we just aren’t there yet.

First, I’m still not connected to everything I want to be connected to.
Secondly, the things a phone can do are primarily passive. I can get information, and yes I can send information and do creative things like take photos and videos, but I can’t always take action with it – at least, not on other things.

For instance, without the resources and brainpower of Bill Gates,

Why can’t I check if my lights are off and my doors are locked when I go on vacation? And if they are on, shouldn’t I be able to switch them on/off from anywhere?
Why can’t I start my morning from bed by getting the coffee maker going, turning on lights, warming up the car, etc.? I can check my emails, the weather and my schedule, but I can’t do anything else to make my morning more productive.
Why can’t I carry my medical records with me and share them with my doctor? I can search symptoms, directions to the doctors office, but I can’t transfer my information from one doctor to the next.
Why can’t I print something from my phone to a nearby printer? Or just show some photos or videos on my phone on any big TV or monitor I get close to (without it being a big hassle)? I can view photos on the tiny screen and even Word documents, but I can’t use the TV that’s just sitting there to show photos for everyone else to see.

The following is an overview of the current state of mobility where, in the end, we’ll highlight what we believe are the important things for mobile manufacturers to consider as they evolve their strategies for improved user experiences for their customers.

So why the phone?

The most portable, personal and cherished digital object in our lives is the phone. It is more powerful and more capable of completing tasks similar to what you would expect from a full sized computer only a couple years ago. People are relying on it more to find, capture, collect and share their personal and professional experiences. Palm released the Pre last summer in June, a sliding touch-enabled phone that contains a full QWERTY keyboard, the power to multitask with multiple applications at once, and even cuts cheese! Android and Apple are bringing tens of thousands of applications to people everyday letting them know that, “there’s an app for that.” The phone, as Alexander Graham Bell originally conceived it to be, was an “electrical speech machine” for people to communicate with other people from remote distances. It has now evolved into a computer, a platform, that allows people to communicate with other people and machines with their voices, text, video, photos, their personal data, tweets, and whatever else the imagination holds. More importantly, phones have empowered people with control over many things, literally at their fingertips.

We can’t simply think of the phone as a phone anymore. Instead, we must continue with imaging the phone as a portable entry point into our surrounding digital world.

How people are using phones now

Let’s take a second and look at what’s going on right now, and what we might see happening in the near future. Today, the average smartphone user is doing the following activities with his/her device:

phone calls
texting/SMS
emailing
web browsing
game playing
watching videos, even recording videos
taking, sharing, and viewing photos
social networking
mobile banking
buying music, videos, TV shows, books, etc.
personal organization and management tasks (calendars, notes, etc.)
making fart sounds

But, on the horizon are many other interactions that have either been demonstrated already or will soon become possible as well – possibly even mainstream:

paying for parking spots
scanning barcodes to get product information
locking/unlocking and starting one’s car
opening/closing one’s garage door
turning on/controlling other devices (like TVs, stereo systems, appliances, etc.)
controlling PowerPoint or Keynote presentations on a computer
controlling home appliances and systems remotely (lights, heat, air, appliances, etc.)
driving a car?! (http://www.appirion.com/en/)

While our phones continue to bridge our communication, information, and entertainment needs, we’re beginning to see some attention applied to interactions that allow people to have direct control over physical things around them. The exciting part is that as more of these things become digital, the more people can control them from a single point of access.

More things the phone should be able to talk to

How many appliances do you have currently in your home? How many electronics do you have in your home? Done counting? Gabe has 16 total and I have 14, respectively (of course, we are technophilic Seattleites). Technology is all around us, and it will continue to become more pervasive as time goes on. According to some futurists, using Moore’s Law and observed changes in purchasing power and technology spending, the number of “impact of computing” devices (loosely defined as those pieces of hardware where much more powerful/capacious versions will be available for the same price within 2 years) in an average household has been growing exponentially.

devices-per-home-blue

The average household in the current decade (the 2000s) will have had anywhere between 6-12 different digital, electronic devices. In the 1990s, that average was only 3-4 devices. Remember your first cell phone? In the 1980s, the average was 1-2 devices. Remember your first PC? In addition, consumers are buying more and more of these devices as their lifestyles have become increasingly digital. Have you ever seen the “what’s in your bag?” group on Flickr? And that’s just bags, not entire homes. Here’s mine. It’s predicted that in the next decade, the average home will have 15-30 impact of computing devices; in the 2020s, the average home will have as many as 40-80! Our world is becoming more digital by the moment and soon enough, these devices will all have computer chips and access to wireless networks just like our computers today.

More phones available to talk to these things

More people are going to have this control. You probably already know the numbers, but for everyone else, let’s break it down:

In the past 3 years, the smartphone category has shown a compound annual growth rate (CAGR) of 24.3%.

Smartphones as a percentage of all mobile phone shipments was previously 7.6% in Q4 2006 but jumped to 10.1% in Q1 2007. The size climbed steadily to 15.1% in Q1 2009 with only a slight drop in Q2 2009 to 14.9%.
(sources: Canalys and Strategy Analytics)

While analysts have a range of predictions on how big it will be in the next couple of years, one thing is similar: they predict there are going to be at least 300 million units out the door by 2013. As it stands, there are currently 131-192 millions shipments worldwide (sources: Gartner and iSuppli). Gartner is most optimistic in that they believe 525 million units in will be shipped by 2012; Parks Associates says over 300 million in 2013 and iSuppli says 400-450 million by 2013.

Basically put, the smartphone market is growing and there are going to be more people using them.

Current attempts to ‘Connect the World’

The pieces seem like they are there. Powerful computers in our pockets, increasing number of devices that can talk to each other, and an expanding network of untethered connectivity. Yet, still, much to our dismay and frustration, very few of these devices and appliances communicate well with each other outside of our home theaters. To date, we’ve primarily been cobbling together a hodgepodge of point solutions to little problems and marveling that it actually works. This approach won’t work in the long run. The initial excitement of what can be done will soon fade away, and people will realize that how it is accomplished is awkward, convoluted, poorly designed, and incomplete. Fragmented solutions and poor user experience leaving us still wanting.

Unsurprisingly, Apple has been the most successful with their approach to offering a seamless digital lifestyle that is simultaneously desirable to consumers, technologically elegant and sound, and that has translated into financial success through new business models. A handful of scenarios that is possible from their approach might sound something like this:

Running a business presentation in Keynote on a MacBook via the Keynote Presenter application on your iPhone
Watching TV, listening to music, or watching local or streaming video content from your couch using Apple TV and the Remote application on your iPhone
Driving a car using the iDrive application available in the Application Store
Fighting global warming by warning you when you’ve reached your monthly electricity budget via Tendril’s application and allowing you to throttle your usage
Connecting to medical accessories through a standardized framework that senses, captures and controls health information

Everyone has their reasons for wanting these applications and frameworks at their fingertips. Apple has demonstrated a vision that could bring us closer to a tangible, connected world.

As for the rest of the mobile handset manufacturers?

Research in Motion (RIM)
Not made by RIM, but Unify4Life is an application that you can install on your BlackBerry giving you the ability to flip channels on your TV, change the volume of your stereo, and even open your garage door. It’s been well-received so far, but the experience isn’t completely seamless. In order to control your entertainment system, Unify4Life requires proprietary add-on device that sends an infra-red signal to your DVD player or TV. The same goes for your garage door opener. Your BlackBerry isn’t completely free to control your world just yet, but someone is starting it. RIM?

Motorola
Motorola is in disaster-recovery mode following 2+ years of poor performance. Once the #2 handset maker in the world (22.4% global market share in Q4 2006, plummeting to just 5.8% share in Q2 2009), they’ve re-strategized and re-focused (less is more, bet on Android) in the hopes of regaining some past glory. The new Cliq smartphone is their first Android handset, with many more likely to follow. But, what if anything, are they thinking about doing beyond catching up? They have broadband cable modems and digital cable boxes in millions of households too, but have they done anything to make their handsets talk to those devices? Yes and no. They recently announced a new Android based set top box in Japan that connects your media in home from your phone. It also plays the role of your typical media center such as playing DVDs and potentially allowing you to surf the web. Other than that, there are no signs of bridging other devices in the home in any other way, even under their own brand.

Sony
The recently released Sony Aino is offered as a companion phone to the Playstation 3, incorporating the PSP’s Remote Play capability allowing controls to the menu system on the device. In addition, attaching a Sony PlayTV to your Playstation 3 turns it into a DVR which can be controlled by the same Remote Play application. But, you can’t mow down soldiers in Call of Duty with your phone just yet (not that you’d want to).

Nokia
They hold the largest share in both the feature phone and smartphone categories, not to mention they are projected to have the largest share of mobile OS’s worldwide (Symbian). While they continue to exploit the bottom of the pyramid, capturing global market share (from 30.7% in Q3 2004 to 40.5% in Q2 2009) and global brand recognition, they have shown some signs of weakness in the smartphone category. Their early advantage and dominance has fallen slightly in the past 2 years from 50.8% share in Q2 2007 to around 45% in Q2 2009, as RIM and Apple have emerged as the strongest followers. Nokia has its Ovi Store (ho hum), and they just released a netbook, but how else can you integrate a Nokia phone into your life?

A new future

There are still a lot of questions out there: What business models should companies adopt? And the best suite of technology solutions necessary to do it?

But there are things that we believe in:

We believe open standards, an open developer platforms and more research should be done to continually understand how our digital lives are interwoven with a growing set of digital devices and appliances.
We also believe there are a lot of smart people already thinking about these problems and have some ideas. But the fact remains the same, we aren’t there yet.

There are also things that we know:

The market has had over 24% year-over-year growth in smartphone adoption since mid-2006, with forecasts expected to continue at 20%+ annual growth for the next few years
Over 50% of the world has a mobile phone (4.1 billion+ total subscriptions)
36% of people worldwide say they “can’t live without their phones”
Appliance manufacturer Whirlpool will manufacture over 1 million “smart” dryers by 2011 (25% of their total dryer production). GE is also doing lots of work on making our appliances smarter, and $3.9 billion in stimulus grants from the Department of Energy is helping
People are highly mobile, and the things they interact with are in separate locations, or in the cloud. The phones that are with them all the time are the most convenient and readily available access points to their digital lives
A pair of pants typically has only 4 pockets. There is only so much technology you can fit in those jeans. Not to mention the current trend of skinny jeans

So let’s imagine…

Let’s imagine this new ‘also-a-phone’ as a remote control. Having a “remote control for life” can do so much more for you as an individual and for your family. We’re talking about smarter, more responsible living. Mobile manufacturers should advocate and enable people to do more than just “connect.” Use connectivity to help people do something good!

For example: today, understanding our energy and environmental “footprint” and the impact of changing our behaviors is still a difficult and complex undertaking. We don’t have the tools or infrastructure for understanding how our energy usage is divided among all the things in our homes and world that require energy; all we have is a monthly bill with a total number.

In the future, as more and more of the energy-consuming devices we use in our lives become capable of communicating with one another and the infrastructure (the “smart grid”) for understanding energy supply, cost, and usage is rolled out and matured, we should be able to use our smartphones as the central device for monitoring, understanding, and acting upon this aspect of responsible living.

No other device or tool has the ubiquity and power to transform billions of individual, small actions into world-changing, collective actions by regular people to inform, modify, and correct our behaviors related to energy consumption.

And that’s just one example.

In the future, mobile phone manufacturers should design the handsets, software, and services to work cooperatively with the other devices and appliances in our lives so that the “phone” can evolve into more than just the information-communication-productivity-and-entertainment device it is now. The phone of the future can also become the “remote control” for responsible living.

Oh yeah, and maybe in the future, I can show those photos to my sister and my parents on the big screen, instead of on my phone.

Keep the conversation going

If you like the idea of your phone giving you access to control the things around you, we’d love to hear about it! Use the hashtag #remoteArtefact on Twitter and share your ideas, stories or thoughts. Tell us your ideas, stories of when your phone could have saved the day or other considerations we haven’t touched on yet. We’ll keep exploring the possibilities on our end here. Thanks!

Beyond the fad: There’s more to touch than meets the eye

by Martijn van Tilburg, posted April 10th, 2009
categorized under design, featured, how to, mobile, natural ui | Comments

Recent innovation in the mobile phone market has introduced many new ideas around user input mechanisms (e.g. touch and speech), UI model, as well as output (e.g. new types of displays and audio).

When designing digital products, it is important to find the right balance between these three aspects. This might seem somewhat obvious, but most of the newer mobile phones have not done this well. Many companies just slap on touch, rather than designing the touch user experience from the ground up.

uimodel1

To understand this we have to take look at products where touch technology has been used for a long time; public vending machines. People that need to be able to buy tickets on vending machines range from 8 year olds to 80 year olds. That is why the design of the user interface for these products requires extra attention. Users should be able to use the product quickly without any prior training. When you walk up to the device it is immediately clear what the steps are; select your destination, select the type of ticket, and pay. This is called a “walk-up-and-use” interface.
Here you see an example of one of these ticket vending machines for the Dutch Railways. There also is an online demo of this walk-up-and-use user interface. http://webdemo.ns.nl/webdemo.e2000/ train

Touch screens are a great match to the walk-up-and-use interface model. After all, all complexity is removed, because there is no separation between the screen and the input, as you have with a d-pad, mouse, or hardware buttons.
Choosing for a touch screen (at least on a small screen) indirectly forces simplification of user interface. By requiring larger target sizes (since our finger tips are larger than mouse pointers), there is room for fewer objects and controls on the screen. Designers have to think even more carefully about how to use the precious screen “real estate” so as not to overcrowd the interface. The user has to be 100% clear about what will happen when they actually touch the screen.

Essentially the iPhone is designed as a walk-up-and-use interface as well. Everything is only a couple of taps away, only the most important functionality is included, everything you can do is clearly visible on the screen and screens have clear instructions and most icons have labels for what they mean and do. Also the multi touch functionality for things like scaling and scrolling becomes obvious once you understand the capabilities.
In addition a large screen, with a high resolution, accommodates for large hit areas and labels in a small font.

uimodel

There are disadvantages with this user interface model as well. Although everyone can use and learn the functionality quickly, there is not much room for users to get better in a skill and acquire a certain level of mastery. Also, the walk-up-and-use UI model is not the only model that can be paired with a touch user interface. Sometimes it is the design goal is to create an element of discovery in the user experience, for example in games. In this case it might be desirable to choose a UI model that encourages exploration, rather than ease of use.

When considering some of the other mobile products that have come out recently, there is not such a logical partnership between the input mechanism (touch) and the user interface model and the output. For example:

Windows Mobile 6 phones, for example from HTC, utilize several different input methods, ranging from d-pad, stylus to touch. The user interface model needs to accommodate all these different inputs. Windows Mobile phones are originally based on the desktop metaphor (i.e. start button and windows with close boxes). Users have to switch input type as well as mental model when using different functionality throughout these products.
The Blackberry Storm essentially is not that much different from other Blackberries, except touch was added to it. Blackberries are devices where efficiency is important. It is okay for users to invest in learning the system in order for them to become more efficient. Once you have invested this time, you don’t want to relearn everything when you upgrade to the Storm. So RIM decided to stick to many of the intricacies of the Blackberry UI model, but then also add touch.
RIM did add an innovative input mechanism to the device called ClickThrough. There is a distinction between touching the screen and actually pressing down on the screen. However they only use it to make typing feel more natural. There is a missed opportunity to align this input method with an efficient UI model. For example they could have used touch for the primary action (open) and press down for other contextual options (copy, share, etc.).
The T-mobile G1 is specifically designed with touch in mind. However it is essentially a desktop computer with touch. It included many PC concepts, such as a desktop and menus where all the commands are hidden from view.
Nokia also had a lot of UI legacy that they need to reconcile with their d-pad designs. Nokia’s phones (for example the Nokia 5800 XpressMusic) often have obscure icons with no labels, which requires users to learn them first. This might be fine when your phone has a d-pad and you get a tooltip that explains the icon, but for touch you need to understand it before you tap it. The same applies to Palm Pre.

In conclusion the careful balance between input, UI model and output is essential for any design. Although touch is trendy, it will only get you so far. When you do not design a user experience from the ground up, with touch in mind, you will only scratch the surface of what touch has to offer.

In The News On Touch And Mobile Experiences

by Kevin Wong, posted December 17th, 2008
categorized under artefact, featured, mobile, natural ui, press | Comments

We have been informed a few of our interviews have been posted on PC Magazine and Wireless Week. Martijn Van Tilburg and Sabrina Boler were asked to share their thoughts on the advancement of touch based interfaces for mobile and in general use. Articles can be found below:

The Age of Touch Computing: A Complete Guide
Touch computing-which started with the iPhone and is now making its way to your desktop-will change computing paradigms, at least for the most common PC tasks.

Q&A: Sabrina Boler, Touch UI Designer
Sabrina Boler is a design director at interface design company Artefact Group. We interviewed her to find out about the current state of touch interfaces, and what UI designers think may come next.

Thinking Through UIs
How can developers create good user interfaces when the world around them keeps changing? There are a few simple strategies to follow, but there are no guarantees.

The Weekly a-List

by Kevin Wong, posted December 15th, 2008
categorized under a-list, design, e-commerce, inspiration, mobile | Comments

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Say goodbye to your address book.

by Martijn van Tilburg, posted December 10th, 2008
categorized under design, featured, mobile, trends | Comments

Social networks have changed the way people communicate with each other. This change has drastic implication to the design of the mobile phone.

Phone manufacturers are beginning to develop wireless devices that cater to the needs of specific audience niches, like social communicators. INQ Mobile has created a phone tied to networks such as Facebook, Skype and Windows Live Messenger and Motorola is developing a social phone based on the Android platform.

They might be the forerunners, but eventually all phones will need to integrate this new functionality into their address book design (beyond simply adding a mobile social network application). These are some of the implication for these social phones:

More contacts and more communication options

You can consider your social graph as a series of concentric circles. You are in the center and the people you communicate with on a daily or weekly basis are visualized as your inner circle. The immediate band around that are your Friends and Coworkers. The contact information for this group of people has traditionally been stored in your address book on the phone. The typical communication with this group is phone calls, SMS and emails.

The social network bands consist of Social Network “Friends” and Friends of Friends. The first group contains people that you frequently communicate with, but you might never give them a call. Example communication in this group is through asynchronous status updates, comments or photos. Communication with the last group of people, friends of friends is also different; for example you might exchange more generic questions and answers with this group of people.

It is likely that people in the narrower circles are also part of the wider circles, so communication with friends and coworker often includes social network information.

Different information around your contacts
The type and amount of information and activities around “friends” within my social network changes and increases drastically. Where I traditionally would have the choice to call or SMS Joe, now I can find out where Joe is, or who he knows.

Change to the contact List
The design of the contact list on mobile phones will have to change to accommodate for how people are currently interacting with each other. The contact list needs to allow users to determine what the best way is to communicate with someone at a certain moment. It needs to provide both static as well as dynamic information around your contacts from disparate sources. Sometimes it needs to behave like an inbox and sometimes like a phonebook.

Micro blogging

The above examples are about communication with people within my social circle. Blogging allows people to communicate to those beyond that group as well. The trend of Micro Blogging (blogs around brief messages or photos) is specifically well suited for mobile use. This social trend requires more emphasis on a good content generation and editing experience on a mobile device.

These are only a couple of examples of what might change for mobile phones when manufacturers and carriers embrace the way users communicate now.

NUI and Mobile User Experience Coverage

by Kevin Wong, posted November 18th, 2008
categorized under featured, mobile, natural ui, press | Comments

Some exciting news this morning! We’ve been recently interviewed by a couple different journalists about our work in natural user interfaces and mobile user experience. It has been an exciting process for many of us.

Seattle Firm Artefact Joined HTC on Touch Diamond™ (via RCR Wireless)
The first article reports on the emergence of several mobile handsets that build upon the Windows Mobile OS. Martijn and Agnieszka were asked to speak to the process and benefits of design for greater user experiences in the mobile industry with HTC as the leading example.

The Evolution of Natural User Interfaces (via Smart Device Central)
In a way, this article by one of PC Magazine’s contributing editors, Jamie Lendino, builds on the IxDA event we held back in June on NUI. While we will see many more products that include NUI experiences, there are still many design challenges that are left to resolve. Not to mention, NUI does not mean it will replace GUI entirely just yet. Not until we all have the ability to control things with our minds.