Chinese are spending more on goods and services they perceive as higher quality or higher status, Nielsen research shows.

Consumers are using their growing buying power to trade up to premium products – and this trend is a key driver of sales growth in China.

“In FMCG (fast-moving consumer goods) categories, the trading up trend started with small items like a yogurt drink, as consumers were willing to pay more for something beyond the ordinary,” said Nielsen Greater China VP Lynn Xu.

“Today, the trading up trend is so prevalent for FMCG products that it can be seen in nearly every category, from infant baby formula to liquid milk, from a bottle of skin moisturiser to a tube of toothpaste.”

One reason: A fourfold increase in average household income in just over a decade.

Between 2000 and 2012, disposable annual income in China jumped from an average of 6280 yuan (US$$1022) to 24,564 yuan (US$3999), according to the Chinese government. And in just the past three years, total assets in Chinese banks have grown 146 per cent.

“With more cash in their pockets, Chinese consumers have developed a more sophisticated taste for life,” said Xu.

“Consumers’ increased awareness of product quality and safety is the primary trigger behind the premium trend. The strong premium momentum in infant milk formula, especially following the 2008 melamine scandal, is a good example.”

With a growing number of millionaires and billionaires, China also has attracted the attention of the financial world. Eighteen banks have launched elite services to cater to the needs of wealthy Chinese.

But premium products aren’t just for the wealthy. In fact, average-income consumers show interest in a wider variety of premium products than wealthy consumers do, Nielsen research shows.

“Today, Chinese consumers’ needs are evolving from functional to emotional, from basic needs to self-realisation,” said Xu.

“Beyond basic needs, Chinese consumers are looking for a better and healthier life where they can enjoy advanced technology, a product that might showcase who they are, and an opportunity to indulge as a self-reward for their hard work. In this regard, products with natural/green ingredients, or special features are likely to win more Chinese consumers on their path toward premiumisation.”

What are the best ways to sell a premium product in China? Nielsen advises:

• Stretch your brand, instead of launching a new brand, to leverage existing credibility in the market.
• Go green and natural, with natural ingredients.
• Offer a unique benefit or a specific function – such as VIP perks with a premium service credit card, for instance.
• Offer a competitive advantage, communicating specifically why your product is better than your competitors’. And back it up with superior performance.
• Stand out with high-quality packaging.