Lower tier cities offer growth in China

8 January 2013

BEIJING: Marketers in China could benefit from responding to changing tastes in lower tier cities, which offer access to millions of households and RMB8tr ($160bn) in consumer spending, a study has argued.

According to a report from Ogilvy & Mather, the agency, some 200m households in second, third and fourth tier cities currently fall into the "consuming class" in the world's most populous nation.

While residents of the country's four urban centres in tier one – Beijing, Guangzhou, Shanghai and Shenzhen – have a disposable income of RMB1tr per year, this rises to RMB8tr across tiers two to four.

Adspend in second and third tier markets is also roughly four times greater than for their top-tier equivalents, not least because their "consuming class" population is seven times larger.

One core trend identified by the analysis was that a "new breed" of young consumer has emerged which, while still maintaining an interest in strong family ties, has its own hopes and expectations.

There is a "seasonality" in purchases among young consumers, especially as teenagers leave home to attend university or join the army, when laptops, mobile phones and apparel are in high demand.

Similarly, mobile web use is rising, with Tencent QQ, an instant messaging platform, often more popular than SMS. Researching purchases via this route has seen a parallel increase in uptake, partially due to widespread anxiety about product quality.

Food safety, environmental pollution and the rising price of property and healthcare are the primary concerns of shoppers, according to the analysis.

"Apple enjoys universal recognition as a great brand, but few people own Apple products as they say that other brands were 'good enough for their needs,'" it added.

Singles Day, a Chinese equivalent to Cyber Monday, is also popular with the youthful audience in tiers two to four, where ecommerce more generally is providing access to big brands not typically available in stores.

"As much as they appreciate the choices, deals and convenience of e-commerce, many are uncertain about the quality of their purchases and seek guidance from trusted sources within their wider social circles," the report argued.

"Reverse migration" from first tier to smaller cities is also increasing, especially among people who moved to hubs like Beijing and Shanghai but have not seen lifestyle improve.

Data sourced from Ogilvy & Mather; additional content by Warc staff