BEIJING: Brand owners seeking to make an impact in China must anticipate the changing needs of middle class customers in smaller cities, who will drive growth over the next decade.
In a study, The Boston Consulting Group estimated there are now 148m middle income and affluent consumers (MACs) in China, earning between 5,000 yuan ($749; €537; £464) and 8,000 yuan a month.
At present, 65m of this cohort are drawn from Tier 1 and Tier 2 cities, while 83m inhabit locales in Tier 3 or below.
During the coming ten years, the number of MACs should hit 415m, including 127m in the top two rungs and 288m elsewhere.
Only 18% of residents in smaller cities already fit this description, a total pegged to come in at 45% for 2020.
A survey of 7,268 MAC Chinese shoppers revealed 22% planed to boost discretionary expenditure over the next 12 months.
Half of participants will maintain existing spending patterns and 28% thought their outlay would fall.
Overall, 29% of respondents from Tier 4 expected an increase in household budgets covering the same period, and 46% wished to buy more expensive goods and services.
These scores stood at 28% and 45% respectively in Tier 3, and reached 24% and 36% for Tier 2.
Just 22% of those polled in Tier 1 areas such as Beijing and Shanghai believed their outgoings may surge, and 37% expressed a desire to acquire more premium offerings.
Of the sample as a whole, 41% intended to trade up in at least one category and 27% preferred the opposite strategy.
A majority wanted to obtain higher-grade electronics, with infant and baby products performing equally well.
Similar numbers of people in smaller markets hoped to follow this approach concerning home and decoration, apparel and shoes, skincare/cosmetics and home appliances, but figures varied from 43% to 48% in big cities.
A quarter of contributors living in large cities had modified their spending habits in the recession, while 38% are currently purchasing cheaper brands and 34% are regularly picking up items on promotion.
By contrast, 18% of their peers in lower-tier metropolitan hubs adopted new behaviours due to the downturn and almost 30% were buying low-cost goods or alternatives on offer with greater frequency.
A third of the featured demographic in Tier 3 or below agreed "The more I buy, the happier I am", slipping to 30% in the most sizeable markets.
Looking ahead, 45% of the former group were "not anxious about the future", a perception that posted 38% in the latter.
Some 27% of MACs in Tier 4 traded up based on brand names, decreasing to 25% in Tier 3 and 21% in both Tier 1 and Tier 2.
A quarter of respondents in Tiers 3 and 4 prioritised "meaningful technical differences" when choosing products and approximately 30% selected the healthiest line available.
Nearly 40% of Tier 4 participants enjoyed "buying and using products", dropping to 35% for Tier 3, 43% for Tier 22 and 28% in Tier 1.
When assessing trusted information sources, 76% of Chinese consumers favoured word of mouth, beating in-store sales promoters on 43%, TV commercials on 23% and online on 18.5%.
Today, companies must be active in 340 urban centres to reach 80% of the MAC population, compared with a projected 550 in 2020, the Boston Consulting Group added.
Data sourced from Boston Consulting Group; additional content by Warc staff