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SpirE-Journal 2013 Q2

The Silver Dragon – How to succeed in China’s Silver market

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The Silver Dragon - How to succeed in China’s Silver market

As their populations aged, Japan and Korea nurtured globally competitive “Silver industries” and technologies, from mobile phones to telemedicine. What may be the greatest market opportunity yet for these industries now beckons – China, the most rapidly aging large economy today. How will China’s Silver market change the game for marketers? What can be done to win in this arena?

How aging populations change markets

Population aging is often measured by the rise in population share of people of retirement age, typically defined at 65 years. Nowadays, a society is considered old when the percentage of the population aged 65 years and above exceeds 8%.

Ironically, today’s aging population represents one of the most remarkable success stories in the history of humankind. It was built on the basis of near-miraculous advances in medical technology and economic conditions. According to the United Nations Population Division, population aging is an irreversible global trend accelerating at a historically unprecedented rate.

While population aging has a profound impact on society, it also presents itself as a new business opportunity. This market can be seen as very attractive precisely because it is at an early stage of the growth curve. Specifically, the Silver market is immature in terms of product and service offerings.

The China Silver Story

China’s rapidly decreasing birth rate – a by-product of China’s 30 year-long “One-Child Policy” – in combination with a stable and improving life expectancy has tipped the Middle Kingdom into the ranks of rapidly aging societies such as Japan and Germany.

At present, there are 178 million people aged 60 and above in China. This figure is more than the total population of Russia and Japan, which stand at roughly 140 million and 130 million respectively. The Chinese silver tsunami is expected to exceed 300 million – more than 20% of China’s total population – by the year 2050.

How big is China’s Silver market potential?

China’s Silver market conceals tremendous potential purchasing power.

By 2025, China’s silver consumers will have an annual average per capita spending power of USD4,100, up from USD1,620 in 2006.

It is estimated that mainland China’s senior citizens enjoy a combined annual income ranging between USD50 and USD65 billion in 2009. By 2025, these “mature” consumers will have an annual average per capita spending power of USD4,100; a jump from USD1,620 in 2006.

Besides, Chinese households typically set aside a large share of their disposable income as savings. For urban households, the percentage of disposable incomes saved has climbed over the years from 18% in 1995 to nearly 29% in 2009.

It is not difficult to understand why Chinese urbanites have a propensity to save. Households with younger heads tend to save for the proverbial “rainy day”, with a view to medical costs and high property prices. Households with older heads save in lieu of pension reforms, rising medical and healthcare costs, as well as to provide an inheritance for their children and grandchildren.

It is forecasted that China’s silver market will continue to grow steadily at an average rate of 3% per year, doubling itself by 20259. Although the Silver market is still immature and largely left out of mainstream marketing and communications efforts, the evidence clearly shows its vast potential.

How can firms better engage with Chinese senior consumers to unlock the potential in this market?

How China’s Silver consumers think and buy

Silver consumers represent a serious marketing opportunity in most developed and many developing countries today. However this is a market that plays by unconventional rules. It is also a segment that tends to resist marketing attempts to stereotype and pigeonhole it. According to the National Seniors Bureau, senior consumers are only purchasing 10% of products and services that are targeted at them specifically.

As such, marketers should first seek to understand before seeking to be understood. Here are some facts that marketers should consider when targeting China’s Silver market.

They want to look and feel good

With a population of 178 million aged 60 and above, China is potentially the world’s largest consumer market for the Silver clothing industry.

Over 90% of China’s seniors would like to see dedicated clothing counters for Silver consumers in apparel retail outlets.

Survey data shows that Chinese seniors are very concerned about their image and attach great importance to the quality of their clothing. 88.2% of the respondents wanted a clothing brand specially catered to their age group. 90.9% of them believed that dedicated clothing counters should be established for senior consumers.

They want to travel

It is estimated that senior consumers account for 20% of China’s total number of travelers – a rising figure, and one that is attributed to their longer, healthier and more active lifestyles these days. They are armed with their savings nest eggs – recall China’s high savings rate – and have fewer young relatives to “support” but also more leisure time for travelling abroad.

Increasingly, they are comfortable with Information Technology

Senior citizens aged 50 and above represent an estimated 10% of China’s total internet users; equivalent to around 50 million people. According to an online Chinese shopping portal, more than 1.75 million senior citizens in China have an online shopping account, and more than 1.3 million of them have successfully transacted online – with both these figures looking set to grow by leaps and bounds. These seniors tend to spend more on apparel, digital electronics and travel equipment; amounting to USD 48 million a year.”

Research also shows that 84.3% of TV viewers are middle-aged women who are familiar with TV home shopping, and that 10.5% of them tend to make purchases. It is forecasted that senior female consumers will account for a rising share of retail sales, positioning online shopping and television shopping channels as key paths to market.

The SpirE-Journal has noted elsewhere that e-tailing is a platform that is particularly suited to Silver consumers, many of whom are less mobile than their younger counterparts.

Misconceptions about Silver marketing

Although Silver marketing efforts in China are beginning to perk up, many companies are still apprehensive about targeting seniors. Many marketers still harbor misconceptions about senior consumers in China, partly due to false generalizations from the experience of Japan. These are some of them.

Myth Number One: They are likely to spend more.

Unlike the US baby boomers and unlike many Japanese Silver consumers, Chinese senior consumers are traditionally more conservative in their purchases and lifestyles. It is generally believed that impulsive consumption is not pervasive amongst Chinese senior citizens. Nevertheless, this may gradually change as China moves towards a more consumption-driven economy with easier access to credit facilities.

Myth Number Two: They are not loyal to brands.

On the contrary, due to the widespread mistrust in Chinese society following the series of food scandals and consumer frauds, Chinese senior citizens tend to draw on their personal experiences or word-of-mouth from trusted associates before embracing a new product or brand. Anecdotal evidence suggests that Chinese senior citizens will show more brand loyalty than the US baby boomers.”

Myth Number Three: They are not price sensitive.

Senior consumers in China are more likely to remain price sensitive and compare options for cost-effectiveness. In a recent survey, the majority of consumers aged 40 and above named price as their topmost consideration during purchases. This is unlikely to change as they age.

The growth frontiers in China’s Silver marketing

Growing old should not be a burden. Instead, it should be considered as a time of transition to a new life stage. The existence of elder-friendly products and services is an important factor in easing this transition. Redesigning the physical and economic environment is equally important in helping senior citizens feel a part of the society they live in.

The following business areas will probably see the greatest degree of Silver market innovation and evolution.

Technology and aging

At least 85% of senior citizens keep in touch with their friends regularly through emails and phone calls. It is thus not surprising that monthly expenditure on telecommunications ranks fourth after food, daily needs and utilities payments – and above that of medical expenses. Research also shows that senior consumers aged between 55 and 65 accounted for 11% of the mobile phone consumption market in Shanghai – equivalent to nearly 7 million mobile devices.

Healthcare

Healthcare is undeniably one of the greatest spending areas amongst senior consumers. Many Chinese seniors invest in healthy living. In fact, 76% of them engage in some form of regular exercise and 39% of them consumer dietary supplements, including vitamins.

A Chinese brand that has capitalized on this trend is “Nao Bai Jin”, which specializes in herbal products. It has positioned itself as a supplement as well as a gift option for senior citizens. Since its establishment, sales of the brand have sky-rocketed through television advertisements.

Retirement plans

With the “4-2-1 (four grandparents, two parents, one child)” phenomenon, “empty nest” households are on the rise.

Retirement needs are rapidly evolving alongside the robust pace of economic development. With the “4-2-1 (four grandparents, two parents, one child)” phenomenon becoming more common, more Chinese are going abroad or out of town for work and study. This has led to an increasing number of “empty nest” households. Presently in Beijing alone, around 30% of the 1.8 million senior citizens who are aged 60 and above are “empty nesters”.

Meanwhile, elder demand for apartments is on the rise, with serviced apartments for the aged mushrooming across the country. The government is also doing its part to take care of senior citizens, as reflected in its ‘Elderly Protection Law’ which indicated that, “The State shall encourage and support social welfare organizations or individuals to set up the elderly welfare homes, nursing homes, apartments for the elderly, elderly medical rehabilitation centers and elderly cultural and sports venues and other facilities.”

What lies ahead?

Despite being overlooked or under-emphasized by many companies, the Chinese Silver market will be colossal. It is poised to usher in a new era of marketing opportunities. The onus is on companies to define their strategy towards this impossible-to-ignore segment.

The evidence suggests that categories like elder-friendly accommodation, assisted living facilities, health supplements, travel and e-commerce will be big Silver arenas. This is not altogether different from Silver trends studied by Spire in other Asian countries.

However China’s Silver segment remains rather price-sensitive, though it has the potential to be extremely brand loyal. The lion’s share of the Silver profit pool will go to firms that can deliver highly cost-efficient, reliable Silver products in an extremely consistent and trustworthy manner – perhaps utilizing paths to market like e-tailing and TV home shopping that are highly scalable. Brands that can pull off this feat can expect the support of China’s government and wider population, both of whom want to see senior citizens grow old gracefully and happily in China.

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