Mindshare is a global media agency which helps brands gain competitive marketing advantage based on the values of speed, teamwork and provocation.
High potential of lower tier cities represents huge brand opportunity
But understanding unique consumer preferences is vital
Brands striving for success in China are increasingly turning their focus to China’s so-called lower-tier cities. Home to 934 million of China’s population, this staggeringly large group of consumers represent China’s scaled growth engine, with 220 million people aged 20 to 35. With spending by this group looking to reach USD $9.7 trillion by 2030—nearly the size of China’s entire economy in 2015, annual per capita disposable incomes are set to double to USD $8,261 from their current USD $4,482. As a result of this growth, as well as China’s size and complexity, the term “Chinese Consumer" has never been more insufficient as an industry descriptor. Today, brands need to understand precisely who they are talking with if they are to create authentic and effective connections.
Setting out to do just this, Mindshare China has embarked on a two-year national survey program, sending researchers into China’s sprawling network of lower tier cities to understand their characteristics—both static and dynamic.
Under China’s tier system, China’s four Tier 1 cities—Shanghai, Beijing, Guangzhou and Shenzhen—historically represent the wealthiest, largest and most primely-located cities. Moving into “lower” Tier 2 and 3 markets, the cities decrease in affluence, size and move further away from prime locations.
According to the classification of the financial publication Yicai Global, China has four Tier 1 cities, 15 emerging or “New Tier 1” cities, 30 Tier 2 cities, 70 Tier 3 cities, 90 Tier 4 cities, and 129 Tier 5 cites.
However, with GDP growth in lower tier cities largely keeping pace or even outpacing that of Tier 1 and 2 cities, one could not be more wrong in assuming that consumers in China’s Tier 1 and 2 cities are more generous spenders than those in lower tier cities. While spenders in higher tier cities may have more disposable income in absolute terms, it is spenders in lower tier cities who are willing to pay a premium for high quality goods. Because of lower cost of living, disposable income is growing 1.2 percent faster year-on-year in lower tiers compared with higher tiers.
One only has to look back to 2019’s Spring Festival, where lower-tier citizens placed more e-commerce orders on Tmall and JD.com, across a wider array of categories, than those living in first tier cities. Certain categories saw explosive sales increases, with cosmetic spending increasing 38 percent in lower timers versus just 16 percent in major cities. Avant-garde categories, like flavored mouthwashes and customizable electronic toothbrushes, experienced similar results.
Growth requires understanding
Understanding and harnessing this growth requires a solid understanding of these lower tier cities. While much commentary online characterizes lower tier citizens’ lives as “rich and free” thanks to comfortable civil and state service jobs, Mindshare discovered that the situation is not exactly as perceived when conducting its proprietary research on lower tier cities. While many people have seen their disposable income grow between 9.5-to-10.8 percent annually over the last three years, most individuals work long-hours, often running their own businesses, to enable these livelihood improvements. Their abundance of cash has led to a huge increase in demand for luxury goods, with 70-to-80 percent of women in lower tier cities using luxury cosmetic products.
Those living in lower-tier cities especially believe in keeping their social circles tight. They place great emphasis on the opinions and recommendations of their trusted peers rather than on traditional adverts, which explains in part China’s rapid rise of KOCs (Key Opinion Consumers) over the last few years. Despite common misperceptions, many of China’s lower tier citizens are indeed aware of the lifestyles in major cities, where many of their friends live. But their brand preferences vary from those of upper tier consumers because of differences in education, views on beauty, media consumption and local culture. For instance, while those living in Tier 1 or 2 cities use Nippon paint, drink Red Bull and wear Uniqlo, consumers living in lower-tier markets instead choose to use 3Trees paint, drink Recca and wear Yishion. Brands looking to connect with these consumers need to not only be aware of these differences, but actually adjust their products and communications accordingly. Most importantly, pay attention to local culture. Lower-tier markets greatly value their individual cultures and resonate with content that connects.
Brand Building Action Points
- Align with local aesthetics
According to our research, in contrast to the aesthetic preferences of upper tier residents, people in lower tiers prefer colorful and vibrant products and communications. These findings are incredibly valuable for brands. It shows just how important it is to break the aesthetic gap; brands operating in major cities cannot afford to apply their own aesthetic values when trying to connect with consumers in lower-tier markets. Instead, they need to communicate and connect with them in ways that resonate, creating unique designs for their characteristics and local culture.
- Align communications
While recent years have seen major apps specifically targeting lower-tier consumers via content and dedicated app sections, traditional advertising like TV and radio still have a role to play. For lower tier citizens, CCTV and LTV are the highest rated channels with the highest media penetration. Product exposure on these media channels acts as a strong product endorsement. Similarly, county-level TV stations act as important channels to disseminate information.
- Align brand ambassadors
Local KOLs tend to have more sway than bigger national or international influencers. While these celebrities may be equally popular in lower-tier cities as in major ones, lower-tier citizens place far greater value and trust on the opinions of those they find most relatable, for instance TV hosts and broadcasters. Offline events that expand online, as well as working with KOCs help to ensure better localization and relevancy of content.