Even with over-the-counter meds, traditional medicine still popular

With rising health consciousness, China's consumer health market is expected to experience an upswing in the next five years. The trend will spark business opportunities in the world's second-largest economy, according to a new report from the Boston Consulting Group (BCG).

China's growing health and wellness market is poised to reach nearly $70 billion by 2020, says the report, which is based on a survey of 2,600 middle- and upper-income consumers aged 18 to 65 from across China.

"We project an average year-on-year growth of about 11 percent for the over-the-counter (OTC) treatments segment and vitamins, minerals and supplements (VMS) market between 2014 and 2020," said Wu Chun, partner and managing director at BCG Greater China.

The survey said that 73 percent of the interviewees are willing to pay more for products deemed healthier, a percentage 12 points higher than the global average. Factors behind the trend include rising incomes, the stressful effects of urbanization, an aging population and ongoing issues with food safety and quality.

"Almost half of the Chinese consumers we surveyed said they feel subpar because of lifestyle factors such as work pressure, family obligations and long work hours," said Carol Liao, a BCG senior partner and coauthor of the report.

Chinese consumers are not only seeking treatments but also prevention of health problems through exercises, diet and VMS products.

More than 60 percent of consumers both from the lower end of the economic spectrum - with annual household incomes of $19,593 to $39,186 - and the upper end - with annual household incomes of more than $40,000 - said they believe it is both efficient and convenient to take VMS and OTC products.

The report points out that Chinese consumers tend to prefer traditional Chinese medicine (TCM) and products with multiple functions, as many of them are concerned about possible side effects of Western OTC products.

"TCM is popular with consumers of all ages, not only the older generation," said the report, adding the 55 percent of residents of large cities prefer TCM, compared with 35 percent in small ones.

"Chinese consumers might tend to go for TCM first, unlike Americans who go for OTC medicine or other products," said Laura Mahecha, an independent Healthcare industry expert serving the Kline Market Research Healthcare Practice.

"A lot of successful Chinese pharmaceutical companies, such as Yiling and Taitai, all grew their business bigger because of their star TCM products, which are more trusted among the Chinese and also cost less to make," said Yan, a New Jersey-based industry insider who has pharmaceutical businesses both in the US and China and asked that her last name not be given.

"Now these companies, once successful, all started to develop Western health and wellness products and their brand is solid now," she added.

To compete and gain bigger market share in the increasingly lucrative market, companies should focus on their brand building, as better-known brands are considered safer and of higher quality than less-known brands, especially when it comes to OTC products and self-medication, according to the report.

"Companies with strong brand equity may be able to capitalize on it by extending the brand into other product areas or consumer segments," the report says.

Currently the consumer health market in China remains quite fragmented due to a broad range of preferences, based on things like age group, city size and income level.

In addition to leveraging strong brands, the report suggests companies develop product portfolios that play to distinct business strengths.

"Before jumping in and committing valuable resources to secure a foothold, most companies are wrestling with a variety of strategic issues, such as which consumer segments to target, which products to offer, how city size affects consumer behavior and which distribution channels to use," said Wu.

The report also recommends companies develop campaigns in order to educate consumers about product quality and value and try to correct commonmisconceptions about certain products.

In addition, the report says that it is critical for companies to manage their retail outlets "aggressively", including having a retail presence and shelf space in major pharmacy chains, which are considered the most important sales channel for health and wellness products in China.

"Encourage consumers to try your products by providing free in-store samples and clear product information," the report writes. "You should aim to build relationships with pharmacists and in-store staff as well as educate them, as they can strongly influence consumers' purchase decisions."

Foreign companies may also look out for regulation and policy issues, which the BCG report does not address much, according to Mahecha.

"Even if they say the (Chinese) market is opening up, the local Chinese companies do have advantages in the sense that they are more familiar with the regulations and approval process than outside firms are," said Mahecha.

Zhang Yang contributed to this report and can be reached at [email protected].

[email protected]