K-shaped Consumption: Cost-performance Ratio vs. Sentiment-value Ratio

Debates over consumption upgrade and downgrade persist across China’s consumer market, with valid data supporting both arguments. Affordable retail platforms represented by Pinduoduo continue to post revenue growth exceeding market expectations, while luxury goods and high-end services demonstrate remarkable resilience against economic cycles. In stark contrast, mid-tier consumption keeps shrinking. Physical businesses targeting the middle class, including light luxury brands, fast fashion chains and internet-famous catering outlets, see their store closure rates rise year after year, and the foundational strength of the market’s middle segment is rapidly weakening. Rather than a one-way shift toward either upgrading or downgrading, the current consumer market is marked by structural division, presenting a distinct K-shaped trend: the high-end and low-end markets expand in opposite directions, while the middle track keeps contracting.

Underlying Drivers of K-shaped Consumption Division

The formation of this K-shaped structure is closely linked to changes in household balance sheets over the past decade. Previously, Chinese households’ wealth expectations were highly tied to real estate appreciation. Asset premiums driven by mortgage leverage created a widespread middle-class consumption illusion, and the popularization of credit consumption tools further fueled the prosperity of mid-tier consumption. In recent years, hit by overlapping factors including public health crises, restructuring of the global trade landscape, economic downturn and industrial transformation, middle-income groups have revised their expectations for asset appreciation. The wealth effect of real estate has faded, and disposable income has been subject to tightened liquidity constraints. Collectively, these changes have triggered a systemic contraction in mid-tier consumer demand.

Restructuring of the Dual Consumption Mindset

K-shaped division essentially represents a fundamental overhaul of people’s consumption decision-making logic. The two divergent tracks correspond to entirely independent sets of value judgment. The downward track prioritizes cost-performance ratio, where purchasing decisions follow the principle of optimizing utility against price and belong to the realm of rational calculation. The upward track centers on sentiment-value ratio, with decisions based on the alignment between product identity and emotional value, a form of emotional identification. The two models operate under completely different market rules.

Cost-performance Track: Efficiency-driven Trust Proxy Model

The cost-performance track has evolved into a fiercely competitive red ocean. Its core competition is no longer simply about slashing prices, but upgrading perceived value while maintaining affordability.

Mixue Bingcheng serves as a typical example. It delivers large-scale sales of lemonade priced at just 4 RMB thanks to extreme supply chain efficiency, and reinforces brand recognition through saturated marketing campaigns. After entering the Chinese market, German discount supermarket ALDI adopts shelf layouts and store design standards even higher than ordinary premium supermarkets, precisely catering to consumers’ sense of superiority derived from rational purchasing choices. What customers pursue is not rock-bottom prices, but the recognition of making smart decisions to obtain satisfactory goods at the lowest possible cost.

Survival in this track hinges entirely on efficiency. Enterprises need to build supply chains with strong competitive moats, adopt a streamlined SKU strategy to maximize the scale effect of individual products, and improve inventory turnover to cut circulation costs. It is worth noting that competition in the cost-performance field is not a pure price war. Its essence lies in establishing a trust proxy relationship with consumers, eventually becoming their default choice that requires no extra consideration over quality or decision-making.

Sentiment-value Track: Building Irreplaceable Brand Narratives

Pricing in the sentiment-value track is decoupled from production costs. Its core lies in shaping a strong sense of identity and emotional value, and its competitiveness stems from creating incomparable advantages. While competition in the cost-performance track relies on quantifiable parameter comparisons, the sentiment-value track builds differentiated moats through unique brand narratives.

Brands that highlight comparable attributes such as "the same materials as high-end luxury brands" will immediately lose pricing power. In contrast, exclusive narratives like "artisan handmade customization" and "global limited editions" effectively sustain premium pricing.

The premium margin in this track is directly determined by how tangible and exclusive the brand narratives are. Meanwhile, enterprises must steer clear of the pseudo-luxury trap. Generation Z consumers are highly perceptive of authentic brand value. Pure conceptual hype and profiteering through inflated prices will soon be exposed, leading to the total collapse of brand equity.

Strategic Choices for the Two Tracks

Cross-track expansion is barely feasible. The two consumption models have fundamentally conflicting requirements in terms of operational logic, user mindshare and resource allocation, equivalent to running two completely separate business systems simultaneously.

Therefore, the optimal strategy for enterprises is to focus on a single track and avoid ambiguous positioning. Brands attempting to cater to both high-end and mass consumers often end up in a dilemma: they lack price competitiveness while failing to establish recognized brand value. In particular, enterprises should abandon targeting the pseudo-middle class — groups with limited disposable income who chase both social status and practicality. Instead, they need to pick one track and achieve in-depth market penetration.