China’s Next Frontier Its Rising Cities

China’s Next Frontier Its Rising Cities

While lower tier cities comprise 87% of China’s population, they account for 64% of retail sales—suggesting that retailers with the capacity to expand have an eager market awaiting their new stores.

When people think about China’s rise as a global economic powerhouse, they often visualize the stunning development underway in cities such as Shanghai, Beijing and Guangzhou and the growth of these cities’ prosperous denizens. It is little surprise then that they have been a key focal point for advertisers. But the emerging story is how development has spread throughout the country, with a growing middle class that has the ability (and just as importantly, a desire) to spend. Details of the findings were unveiled today at Nielsen’s first-ever China Forum conference in Shanghai. “Residents of lower tier cities and even those living in rural areas now have greater buying power thanks to economic growth and improving wages and present an enormous opportunity for manufacturers who know how to connect with them,” said Lynn Xu, Director, The Nielsen Company China.

Growing Affluence Fuels Demand

China weathered the economic storm better than most and recovered more quickly and robustly thanks in large part to aggressive government efforts to stimulate growth. As a result, consumer confidence has improved ranking China as one of the most optimistic countries in the world.

Much of the recent improvement in confidence was driven not by consumers in the East or in larger cities, but by those in the Central and Western regions of the country. While these regions are less affluent than the more densely populated East, they have been the focus of significant government attention and investment for much of the past decade.

As a result, these regions are catching up in terms of income levels and consumers living in these cities are noticing the improvement. “Research conducted by the Chinese government and Nielsen indicates that once household income in urban areas reach the RMB 6,000 level, consumption of durable goods such as refrigerators, air conditioners and mobile phones rise significantly,” continued Ms. Xu. “For urban areas in the whole of the country, that level was reached in 1999 and sales of durables exploded.”

Tier 3 and 4 cities have already crossed this milestone and offer a ready market for modern trade and products. With large populations and increasing discretionary incomes, lower tier households are becoming a very attractive audience for marketers. While lower tier cities comprise 87% of China’s population, they account for 64% of retail sales, suggesting that retailers with the capacity to expand have an eager market awaiting their stores.

Nielsen surveys indicate these consumers are excited about improving their quality of life by buying new clothes, upgrading the brands of foods they purchase, and increasing travel. Longer term, they hope to purchase new homes and cars.

Reaching Potential Buyers – 5 Considerations

  1. Communication around social themes such as family and maintaining “face” will have a strong appeal.
  2. Local and multinational brands are on a level playing field.
  3. TV and word of mouth remain the most important influencers.
  4. Straddling the income pyramid is one way to build brand loyalty.
  5. Optimize modern trade hubs as a “go to market” strategy for FMCG.

A Tremendous Opportunity Awaits

Emerging cities may not have the exciting appeal of big cities like Shanghai or Beijing, but they are quickly coming into their own, with hard-working people eager to improve their status in life. While that has always been a goal for most Chinese, the nation’s rapid development has increasingly made it a reality, with better jobs, wages and living conditions. Citizens are optimistic and eager to participate in the country’s prosperity. Keep in mind, consumers in the lower tiers, have unique purchasing behavior compared to those in tier 1 and 2 cities. Marketers need to understand the lower tier market dynamics in order to thrive in China.