Nation's consumers care about price, but they're status-sensitive as well

For foreign companies that aspire to penetrate the Chinese market, to truly understand the needs and changing characteristics of its consumers is a constant challenge.

The importance of the market goes without saying. As the Economist magazine said: "In the 1950s and 1960s. the world economy was transformed by the emergence of American consumers. Now China seems poised to become the next consumption superpower."

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But the complexity of Chinese shoppers is also a constant source of anxiety for many foreign companies.

Zhu Rui, professor of marketing and co-director of the Branding Center at the Cheung Kong Graduate School of Business, said one way to understand Chinese consumers is their duality: they are both price-sensitive, changing brands frequently just for a better price, and brand-conscious, willing to pay a high premium for brands that they think could signify their social status.

No wonder they are so obsessed with Europe's luxury brands including Louis Vuitton, Mercedes-Benz and Rolex.

Zhu got a deeper understanding of how this duality affected multinational corporations' marketing strategy after spending 15 years living in North America. When she returned home to China, she found some fascinating phenomena. A bottle of 2006 Penfolds Bin 389 cabernet, which costs $37 in the United States, is about $77 in Beijing. And Huggies diapers cost about the same in the US and China, but the ones in China are of lower quality.

The reason, she said, is that multinational corporations can't compete with domestic players purely on a price basis. To maintain their profit margin, they have to compromise their product quality. But she also cautioned that this "myopic" strategy will eventually damage the brands as consumers in China become better informed.

"The key for multinationals' strategy is that you really have to find an unaddressed need. You should really ask yourself if the need has already been addressed by other companies. If so, and you still want to jump in, what additional benefit can you deliver?" Zhu said.