The household electrical appliances market in the mainland is full of potential, with small appliances being the bright spot in sales in recent years. Between 1998 and 2003, several types of small appliances registered substantial growth in both sales volume and sales value, with the sales of shavers and microwave ovens rising double. Despite this, the ownership rate of small appliances among urban households remains low, underscoring the vast room for further expansion of the market. The market is forecast to grow by 8-14% annually in the next few years.

Today's small appliances, which are user-friendly, practical and personalised in design, can meet the demands of the new generation of mainland consumers. In addition, China's continuous urbanisation, rapid economic growth and rising living standards are also expected to spur the demand for small appliances.

Small household electrical appliances can be classified into three categories: kitchen appliances, personal appliances and general appliances. Among them, the demand for kitchen appliances is the strongest, taking up a 45.8% share in the total sale of all small appliances, followed by personal appliances which account for 23.8%.

The lucrative small appliances market has attracted a large number of players. With their cost advantage, mainland enterprises are more competitive in the kitchen appliances sector. For instance, famous domestic brands such as Midea, Galanz and Haier are most sought-after in the market for microwave oven, induction cooker and oven. In the personal appliances sector, consumers tend to choose foreign brands since such products are more personalised and sophisticated and the requirements for safety are higher. In the face of intensified competition, Hong Kong companies wishing to tap the mainland market must offer the right design and have the right brand positioning taking into account the existing competition landscape and consumer preferences, and refrain from making impetuous moves.

In general, foreign brands dominate the high-end market while domestic brands enjoy price advantage. The disparity in price between the low and high end of the market can be huge. Meanwhile, foreign brands have also launched some low-priced items in recent years.

The Young Generation as Main Consumers of Small Appliances

According to analyses by retailers, consumers of kitchen appliances are mainly young couples aged 18-40, followed by men aged 18-40 and women aged 18-30; while consumers of personal appliances are mainly men and women aged 18-40. Overall, buyers of small appliances are relatively young, reflecting that these products are targeted mainly at the new generation of consumers. The major sales channels are hypermarkets, electrical appliances chain stores and department stores.

It is also found in surveys and in-store observations that most mainland consumers still prefer traditional small appliances with practical use, although some also choose specialised products like juicer, small massager, foot spa and hair remover for satisfying their emotional needs such as better enjoyment of life or staying close to current trends and lifestyles.

According to retailers, the more popular small appliances on the mainland market possess, in descending order of importance, the following features: safety, environmental-friendliness, energy efficiency, multi purpose, health element, high technology, beauty element, and compactness. Some mainland enterprises are quick to capitalise on these consumer preferences and have incorporated "gimmicks" into their products, such as offering "intelligent" or multi-functional models or adding anti-bacterial and energy-saving features to their goods. Products with Chinese characteristics such as electric Chinese medicine pot, soup pot and tea maker have also been launched.

While consumers of small appliances are often induced by an appliance's functions and design to buy, sales in the small appliances market on the mainland are also spurred by product replacement as the market has entered a replacement period. According to a survey of the Hong Kong Trade Development Council (HKTDC), replacement sales took up one-third of the total sales of small kitchen and personal appliances in the past year.

In terms of promotion channels, consumers acquire information on small appliances mainly through TV commercials, newspaper and magazine advertisements, sales promotion activities, word-of-mouth and the Internet.

Product Safety and Brand Name Top Priorities

Due to the fact that some mainland manufacturers do not pay much attention to product safety and after-sale service, consumers often attach importance to the following when buying small appliances: safety, functionality, durability/practicality, price, design and brand. Safety is an issue of particular concern as incidents involving safety problems in household electrical appliances have been quite widespread in the mainland in recent years. These problems may range from product breakdowns to domestic accidents. In addition, following the government's efforts in promoting environmental protection (such as introducing certification systems on safety, environmental protection and energy saving, and requiring some appliances to bear the energy efficiency label), consumers have become more environment-conscious. Such awareness, together with rising electricity charges and the actual economic benefits of energy efficient appliances, means that consumers today are more concerned about the environmental-friendliness of household appliances.

With product safety, environmental protection and energy efficiency as their priorities in choosing electrical appliances, consumers are willing to pay a premium to buy products which can offer guarantee in these aspects. While most consumers are only prepared to pay a premium of a few percentage points, some are willing to pay a much higher premium. The average acceptable premiums are 49% for safety guarantee and 40.4% and 40.5% for energy efficiency guarantee and environment protection guarantee respectively.

However, the vast majority of consumers do not have a high awareness of the concepts of product safety, environmental protection and energy efficiency. They would often judge whether a product is safe, environmental-friendly and energy efficient based on its brand (the general impression is that foreign brands are more environmental-friendly and energy efficient), followed by labelling, word-of-mouth, and recommendation by relatives, friends and sales personnel. Relatively few consumers base their views on information contained in the instruction manual. As such, a good brand is pivotal to breaking into the mainland market. While labels are important in providing information on the safety, environmental protection and energy efficiency aspects of an appliance, efforts have to be made to promote the usefulness of labels and consumers have to be educated on product quality guarantee before the functions of labels can be recognised.

Market Opportunities for Hong Kong Small Appliances

Mainland retailers generally give high ratings to Hong Kong brands in the six areas of goodwill, price, design/style/innovation, functionality/durability/energy efficiency, safety, and product/quality guarantee/maintenance. Where product safety, quality guarantee and design are concerned, over half of the surveyed retailers give Hong Kong brands a score of four or above out of five.

On the consumer side, mainland consumers generally have a good impression of Hong Kong products, in particular in areas such as design, functionality, safety, environmental protection and energy efficiency. Even when compared to international brands, the score of Hong Kong brands is not low, generally reaching a score of seven or above out of 10. The scores of Hong Kong brands range between international and domestic brands. Based on interviews with consumers, it is learned that consumers in the mid-to-high end market reckon that although Hong Kong-branded electrical appliances are also made in the mainland, they are still considered better than their mainland counterparts in terms of energy efficiency and environmental protection.

In terms of regional difference in ratings on Hong Kong brands, consumers in Chengdu generally give higher ratings to Hong Kong brands than consumers in Beijing, Shanghai and Guangzhou. This shows that the market potential for Hong Kong-branded small appliances is greater in second- and third-tier cities.

Although mainland consumers generally believe that Hong Kong brands are superior to mainland brands, over half think that their prices should be on a similar level. Only 37% indicate that Hong Kong brands should enjoy a premium in price. While mainland consumers reckon Hong Kong-branded small appliances perform better in product safety, environmental-friendliness and energy efficiency, 57% of them think that even for Hong Kong products affixed with quality guarantee labels, their prices should only be slightly above the mid-range.

Overall, competition in the mainland small appliances market is steep. To gain a foothold in the market, Hong Kong companies should take special care in product positioning and:

• Devote more efforts to brand building in the mainland;
• Enhance the levels of product quality and design and place emphasis on the strengths of Hong Kong products in functionality, safety, practicality and design;
• Strengthen consumer education to help consumers understand the importance of safety and quality guarantee labels;
• Target second-tier cities.

This new report is available at TDC's Retail Outlets. It can also be purchased through the TDC Bookshop section in the TDC's trade portal: info.hktdc.com.