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By Max Klein | July 14, 2009
The “Other” 500M People in China
You ask any average Joe / Jane their first impressions of China and it will invariably take root in one of the country’s largest, first-tier cities. You think of China, you think of Beijing, Shanghai, and MAYBE Guangzhou. After all, if an airplane is your preferred mode of international travel, there are far fewer flights from London to Zhengzhou (the second-tier capital of China’s Henan Province, with a mere population of 7 million) than there are to Shanghai or Guangzhou.
For me, like many other foreign students, I formed my first impressions of China in the university district in Beijing’s bustling northwest district, Haidian, where upwardly mobile college students from around the country seized at every opportunity to learn, interact, and carve out their niche in one of the world’s most exciting and, increasingly competitive, mega metropolises.
I remember walking down the streets and both Western and Chinese brands shout at you from left and right in the big city: following you through the tunnels on the subway, talking to you in the backseat of a Beijing taxi, waving to you from a brilliantly-colored public bus billboard. The presence of Chinese brands Yili and Mengniu placards alongside those of Nike and Coca-Cola are the only clues that indicate you’re not wandering through Times Square or down Michigan Avenue.
But as most people find out during their first excursion outside China’s first-tier cities, the Peoples’ Republic of China is more than the modern skylines and cutting-edge transportation grids. I can guarantee you that there’s a China out there that is its own separate world. Despite one of the largest urban migrations in history taking place in China today, 37% of China’s population still lives in what are considered fourth- to sixth-tier cities. That’s 37% of 1.3 billion people. You do the math and that amounts to approximately 481 million people. That’s more than the population of the entire United States. Now, when a company contemplates its marketing strategy in ‘China,’ which ‘China’ are they most worried about, the first- to third-tier China, or the fourth- to sixth-tier China?
Let’s depart ‘China-Lite’ (Beijing, Shanghai, Guangzhou, Tianjin, etc.) for a mind-bending journey to the hinterland, the fourth- to sixth-tier cities, where an unprecedented battle for brands is taking place. It’s a place few business travelers dare to go because of its daunting complexity and outwardly apparent disorder and ambiguity. It’s difficult enough to wrap your head around China’s big cities, but if you can develop a strategy for more outlying areas the potential benefits are tremendous. After all, isn’t Chinese consumerism supposed to be the fledgling world economy’s savior? Go get your share!
Key Characteristics of Small Market Consumers in China
In developing a strategy to reach customers in fourth- to sixth-tier cities, understanding the consumer and where he/she comes from remains absolutely crucial. We know brands have taken huge steps towards communicating with urban Chinese and have enjoyed many successes, but few brands have managed to accomplish notable exposure in the markets we’re discussing. In fact, according to observations in one recent Ogilvy & Mather study, only Coke, Sprite, and P&G boast a notable presence in these markets. That’s three major players, in a population sea of nearly 500 million people! On top of that, you’ll find that recognizable Western brands play second fiddle to Chinese brands such as Dabao, Mini Nurse and T-Joy in terms of shelf-placement, according to the study. Let’s ru xiang sui su (Chinese for ‘when in Rome…’) and learn a thing or two about the fourth- through sixth-tier customer.
Family
If you go outside the major urban areas, you see how life and priorities change. Smaller cities and towns are defined by their interconnection – most notably within their family ties. With fewer institutionalized, outside influences, family plays a larger role in daily decision-making from deciding what to eat to what type of rice-cooker to buy, there are no exceptions to that rule.
With three generations living together under one roof, even if you avoid your mother’s nagging opinion about what type of groceries to buy, your grandmother is right there to pick up the slack. Not to mention your aunt, whose house adjoins yours to the right, and your uncle on your father’s side and his family, who live down just the block. These family members constitute a larger decision-making body that advertisers might want to keep in mind as they examine the large lower-tier markets.
Unlike in the largest urban areas, most families in fourth- to sixth-tier markets have two children. In fact, some mothers even relocate to small cities and change their hukou (Chinese residence permit) to that location in order to give birth to more than one child (China is under a one-child policy to control population growth). Children in these areas might not shoulder the societal pressure that their peers in Beijing and Shenzhen are made to endure; parents are less likely to cultivate a xiao huangdi (‘little emperor,’ a term that describes only-children in China’s cities) in a fifth-tier city than they are in a larger urban area.
From a brand perspective, these areas are a growing population of youth that have more free time to spend with their friends outdoors, forming their own ideas about what to wear, eat, and even drive. How this freedom combines with the interconnectedness of small-town family living presents an interesting dilemma for any marketing analyst.
Retail, Perceptions
For any international brand, there’s a fine balance between localization to the China market and what the brand portrays to the rest of the world. How much credibility does my previous brand image carry in a place like China, and conversely, how local should I go with my marketing and branding? These types of dilemmas intensify in the types of markets we’ve been discussing because the lens through which fourth- to sixth-tier city dwelling customers view the outside world is measurably narrower than the panoramic enjoyed by the hippest urbanites.
Let’s take retail as an example. It’s true that China’s largest supermarket chains have begun pushing further and further into fourth- and sixth-tier markets, but they should tread lightly. Chinese customers carry a price-savvy shopping disposition that can affect where they trust they will find the best price for a dependable product. Even if the price of bananas might be the same in the Carrefour (major supermarket chain) as in the local mom-and-pop outfit, the large supermarket’s imposing façade, bright lights, and expansive parking lot might give the false impression that higher prices account for these extra amenities.
That being said, the right retail formula might help take advantage of easier-to-navigate sales channels in the complex lower-tier markets. A recent McKinsey Quarterly study cited the importance of in-store marketing campaigns to attract customers’ attention once they’ve entered the store. One visit to a Chinese supermarket and you’ll notice brands do everything but check their image at the door. Posters, LCD displays, even attractively-clad sales clerks guide you to the right shampoo or instant noodle brand. Of course, reaching these customers before they enter the store is best left for another time, another newsletter.
Conclusion…
For now, if you’re not in charge of developing an international brand’s China market strategy, at the very least consider an exploratory trip to China’s hinterland. These places offer diverse cultural and linguistic experiences and might change the image the word ‘China’ currently conjures up in your mind.
Max Klein was the Manager of Business Development at METAN Development Group. For comments/questions, email gchu@metanmedia.com.
