---
title: "\"Consumption Upgrade\" Is Here Again—Are You Ready This Time?"
description: "Since the reform and opening-up, China has experienced three waves of consumption upgrades: the first in the early reform era boosted light industry and textiles; the second from the late 1980s to the late 1990s drove electronics, steel, and machinery; and the third is currently underway. Industry experts share their insights on what consumption upgrade truly means, and traditional enterprises must adapt by focusing on niche markets, avoiding blind expansion, innovating, and building platforms."
author: "New Distribution"
publisher: "New Distribution"
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published: "2016-12-17"
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# "Consumption Upgrade" Is Here Again—Are You Ready This Time?

> Since the reform and opening-up, China has experienced three waves of consumption upgrades: the first in the early reform era boosted light industry and textiles; the second from the late 1980s to the late 1990s drove electronics, steel, and machinery; and the third is currently underway. Industry experts share their insights on what consumption upgrade truly means, and traditional enterprises must adapt by focusing on niche markets, avoiding blind expansion, innovating, and building platforms.

Since the reform and opening-up, China has experienced three waves of consumption upgrades: the first at the beginning of the reform era boosted the light and textile industries; the second, from the late 1980s to the late 1990s, provided a strong driving force for industries such as electronics, steel, and machinery; and currently, the third consumption structure upgrade and transformation is underway.
Everyone is talking about consumption upgrade, but how should it be interpreted? Let's hear what industry leaders and experts have to say.
**Li Feng, Founder of Ruicapital:** When we look at consumption upgrade, we basically look at three things: brand upgrade, channel upgrade, and category upgrade. For example, some sports brands are declining, but demand is growing, so new brands are needed—brand upgrade is essential. Channel upgrade refers to changes in online and offline retail channels and brand communication methods. Category upgrade, for instance, when the concept of nuts first emerged, they weren't widely regarded as healthy; that idea hadn't taken root. When it became popular, the concept began to resonate—not because of the nuts themselves, but because of consumer upgrade.

**Chen Qi, CEO of Meili United Group:** Comparison is the most powerful driver of consumption upgrade. To a large extent, consumption upgrade is driven by social media circles (WeChat Moments). This is not to encourage blind comparison, but meeting consumers' ever-increasing demands is not wrong.

**Wu Xiaobo, Financial Writer:** In the future China, the demographic dividend, industrial dividend, and environmental dividend may all need to be redefined. These reflect that Chinese consumers have entered an era of "consumption upgrade." With the rise of the middle class, our health demands are increasingly strong. Today's consumer needs are more diverse, and many traditional products can no longer satisfy them. Consumers are paying more attention to "performance ratio" rather than "cost-performance ratio."

**Wang Hanlun, Partner at Chuangdongfang Investment:** Consumption upgrade happens every day. As the post-85s and post-90s become the main consumers, consumption patterns and demands change, leading to corresponding changes on the supply side. For entrepreneurs, if they want to catch the trend, they must still make good products—that is the only unchanging rule.
Consumption upgrade is a long, systematically planned business marketing process. It is not a whim or an overnight brand enhancement; it is a gradual upgrade in all aspects of consumption, specifically reflected in the following four areas:
**1. Upgrading the consumption structure**
Simply put, it is the proportion of money consumers spend on consumption, and the share allocated to different areas such as "food, clothing, housing, transportation, entertainment, health, and happy living." In the past, people spent more on basic daily consumption, which is the "Engel coefficient" often mentioned in textbooks. Now, people are spending on new products or services such as cultural entertainment, overseas travel, and fitness. This structural change in consumption content is the first level of consumption upgrade.
**2. Upgrading consumption categories**
After consumption content changes, what matters more is the types of products and services you choose in each expenditure area. This type is colloquially called "consumption grade." The core opportunity for new brands lies here: using all means to help consumers rebuild category logic, carving out a "new mental model" in the traditional segmentation of that area.
For example, in the past, consumers bought phones that were reliable, functional, and cheap. Then smartphones came, and we pursued better signal services and internet experience. Later, high-end smartphones emerged, and we began to pursue distinctive style and social value. Each time a new category is defined, it undergoes a mental shift in consumption logic.
**3. Upgrading consumption logic**
More directly, it is the value focus and price evaluation methods consumers consider when making purchasing decisions. Under the backdrop of consumption upgrade, consumers value the added value beyond product functionality: quality, health, social interaction, ritual and participation, personalization, and customization.
(1) **In terms of product value**, in the past, the focus was on quality, performance, and functionality. Now, people emphasize the added value beyond the product itself, such as social value derived from others' perceptions.
(2) **In terms of product price**, in the past, the emphasis was on discounts and bargains. Now, people pay more attention to the sense of scarcity and superiority from limited-time, limited-quantity special offers or customization, and to saving time and effort in selecting products through various information channels. As for the specific price, as described in the book "Priceless," consumers can never assess the absolute value of a product; they only roughly evaluate its subjective price through constant comparison and reference to similar products.
Facing the pressure and changes of this consumption upgrade, traditional enterprises must clearly grasp the essence and trends of consumption upgrade while racing to transform. Standing at the forefront of consumption upgrade, what should traditional enterprises do?
**1. Focus on niche markets**
Most traditional enterprises want to sell products to everyone—men, women, white-collar workers, farmers—but they don't know who their products are best for. Under the backdrop of consumption upgrade, traditional enterprises should give up the 1.3 billion market and find their few million or few hundred thousand customers, making products that best meet their personalized needs, building a brand system, and forming good communication and service with specific users.
**2. Abandon large-scale expansion**
Informatization, intelligence, and Industry 4.0 are the second express train for Chinese enterprises. The country's current emphasis on "craftsmanship spirit" and "Made in China 2025" all stress meticulous work. If you can't achieve technology, do quality; if you can't achieve quality, do service. Every enterprise has its core advantages; there is always something you can do best, becoming an industry "boutique," giving users the best experience, and building a century-old brand. Conversely, rapid blind expansion, lacking healthy resources and management, often leads to collapse.
**3. Innovate and stay young**
Youthfulness has nothing to do with industry or product. Mercedes-Benz, with 150 years of business genes, has increasingly fashionable and innovative designs; Coca-Cola, 100 years old, is still vibrant; Apple, a high-tech company, plays with innovative technology and fashion. Being deep and experienced can be in other aspects, but youthfulness must cater to the market.
**4. Open up and build platforms**
Under consumption upgrade, the industry reshuffle will be in the mode of "Internet + Finance + Industry." Traditional enterprises must open their minds, create platform-based models, allow more people with resources to join the cause, share benefits, and grow together, forming a huge integrated platform of industry and finance.
In the new consumption era, traditional enterprises have seen unprecedented crises and opportunities. A wrong decision can ruin a great opportunity or even bring disaster. This urgency has never been so intense in the past 30 years. At the same time, running a business must not be blind following or sticking to conventions. It requires openness to new suggestions and ideas, and a rhythmic path that suits you best. Only then can you turn danger into safety and reap rewards under the backdrop of consumption upgrade!
**Source: Zhoupu Circulation Research**
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