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Capitalizing on opportunities offered by lower tier cities in china

China is not only the world’s second largest economy but also its dominant engine of growth. However in recent years this economic growth has come under pressure because of multiple reasons, both internal as well as external. This decline in growth rate is having a consequent impact on the way the Chinese government sees as its best way forward. It is striving to increase domestic consumption, encourage services sector and keep a check on inflation.

Adding more complexity to this business context is the more crowded and fragmented market, maturing Chinese consumers, impact of digitalization and smart phone and not to mention declining consumer enthusiasm.

Until recently business opportunity in China was limited to big 3 cities and handful of tier 2 for most multinational companies. The above dynamics means the attractiveness of this opportunity is increasingly fading and multinational brands are being forced to look deeper in to the Chinese landscape for new emerging and hitherto untapped markets in lower tiers.

Are the Lower Tier Cities Next Eldorado?

So this begs the question, do lower tier cities offer the same opportunity as that of their higher tier counterparts? In fact, the opportunity that lower tier cities offer is humungous compared to what their higher tier counterpart’s offer and moreover it remains untapped to a large extent.

Over the last decade or so, Chinese government has embarked on a mission to increase domestic consumption and thereby lower China’s reliance on exports. In the process, they have increased their investments in lower tier cities even in the central and western parts of the country and emphasized urbanization by providing housing and civic amenities.

These efforts have paid dividends. According to one estimate, tier 1 and tier 2 combined only accounts for 17% of the national GDP i.e. to say lower tiers combined account for a whopping 83% of the GDP.  However, given the higher tier fixation of most multinationals, it means the focus has been too long and too much on higher tier cities.

Although Tier 3 and 4 have a disposable income half of Tier 1 but given a population approximately 10 times over, it means the potential is not only huge but waiting to be tapped into.

However Opportunity Doesn’t Directly Translates Into Profits

The big question is how to capitalize on this huge opportunity. The challenges are numerous and not very obvious. To begin with, the sheer number of such cities in lower tiers with a million or more is in excess of 200. So which all cities can a brand focus on?

Are these consumers like their higher tier counterparts or do they shop differently with different motivations and preferences? From my experience I can do say that they are definitely different given the context and circumstances that differ across tiers.

So is there a better way to target these consumers? The answer is yes and it’s everywhere around to see.

The Internet Can Make It Possible

Huge proportions of the Chinese population are not only online but are willing to go the extra mile by engaging in it. Lately social media and e-commerce boom has engulfed the country, fueled in part by the high smart phone penetration and also with the more prominence of big players in the market like Wechat, Taobao and Jingdong.

The lower tier cities are not lagging behind on this bandwagon. In fact they are taking to it like a duck takes to water. According to one estimate, the proportion of lower tier city households with internet access is in excess of 50%. This figure is only like to go up and go up fast considering around 85% also have access to a smart phone. These consumers are using internet not just to communicate, exchange or explore but also to buy products and services.

All of the above means, the lower tier cities have opened up for business and are not inaccessible the way they were a few years ago. With a right business strategy and fresh mindset, it is indeed possible to capitalize on this opportunity offered by lower tier cities.

There are as many ways to do it the right way as there are ways to do it wrong. The success depends on the way a brand will understand these consumers, customize its offering and then make itself available through relevant channels.


Article written by Manohar Balivada, Vice President, Ifop, Shanghai  


The rising attractiveness of local brands

The new aspirations of China’s middle class (part 4 out of 4)


Faced with the rising position of China on the world stage and the success of high profile local companies such as Tencent, Alibaba or Xiaomi, the Chinese middle class expresses growing pride and trust in the leadership capabilities of its country in terms of economics and lifestyle, which translates into an increased interest for local brands. These are perceived as much more price competitive and often better distributed across the country than their Western counterparts, faster at taking positions (launching new products, opening points of sales in new places), efficient at adopting communication codes that appeal to the locals and also more and more often innovating. This is what makes the success of Herborist or Inoherb in the field of cosmetics, Haier or Midea in household equipment, BYD in automotive.

As a matter of fact, the middle class emerging in peripheral cities has been less exposed to foreign brands, usually concentrated in Tier 1 and Tier 2 cities, than the previous waves of rising middle class. It turns more naturally to local brands in its daily life, even in categories traditionally dominated by foreign players such as beauty products or sports goods.

This growing competition from local brands has become a major issue for international brands in China. Its impact is probably stronger than the slowing growth of GDP on which Western media tend to focus but which does not yet impact the propensity of consumers to get richer. Local brands eat up foreign brands market shares and develop an intimate relationship with consumers, a factor of lasting success. In front of this, the reaction of large international groups sometimes consists in acquiring these new competitors, like when L’Oréal purchased the Chinese leader of beauty masks Magic Holdings, or to develop alliances like Danone with Mengniu in the field of dairy products. But the key trend is there: local brands are progressively developing the attributes of genuine brands, Chinese consumers aspire to consume them and this is changing the rule of the game in the China market.


Article written by Christophe Jourdain, Ifop International Director.

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Beyond present into the future

The new aspirations of China’s middle class (part 3 out of 4)


Access to a higher standard of living allows the Chinese middle class to look further than the present to anticipate and secure the future. Within all population strata keeping healthy is considered the first factor of happiness in life and the share of wallet dedicated to the family’s health increases regularly. Besides, the Chinese middle class has a high tendency to save: in a recent Ifop survey 79% of Chinese declare they save money on a regular basis, and the way they allocate this money is directed in priority towards long term projects such as housing, education of child and retirement. These aspirations carry the upcoming shift of the country towards an economy of services.

Simultaneously, the Chinese middle class is more and more sensitive to some of the negative effects of the consumption society, pollution and food safety in particular. The former has become a major worry in Tier 1 and 2 cities, and the latter is sensitive everywhere but more particularly in Tier 4 cities were the level of supervision by local authorities is perceived as lower and safety equipment more limited. On these matters, the willingness to act at the individual level, notably via more sustainable consumption behavior, is developing essentially in Tier 1 cities and within the younger and culturally more open strata of population. But it will expand further and brands increasingly need to deliver messages and proof of socially responsible actions if they want to stay in touch with the expectations of the rising middle class.


Article written by Christophe Jourdain, Ifop International Director.

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Acceleration, individualization & socialization thanks to digital

The new aspirations of China’s middle class (part 2 out of 4)


Chinese people are very much attracted by technologies and most urbans are frantic users of smartphones. China is now the number one e-commerce market in the world and, leveraging the power and simplicity of local platforms such as TaoBao, Tmall, WeChat, etc., its consumers are together with South Koreans the most advanced of all in terms of mobile purchases.

Digital allows middle class citizens to satisfy their quest for consumption experiences that are:

  • instantaneous, via the real time dimension of internet coupled with the efficiency of parcel deliveries throughout the country,
  • personalized, thanks to algorithms taking into account consumers profile and historical behavior to provide individualized offers,
  • and shared, via the social dimension of internet and the consultation of peers’ opinion not only before but also during the act of purchase.

It brings the satisfaction of “shopping smart”, a high expectation among the middle class, and spreads across even the most daily tasks as shown by the success of the YiHaoDian website and application selling fresh food delivered within three hours.

Amongst the young, the quest for emotionally rich experiences goes primarily through digital and represents a key lever for brands. In secondary cities where a lot of companies have no presence nor distribution, digital provides individuals with an access to brand consumption which they can’t find in their physical environment, and brands with an opportunity to develop without investing massively into retail. Nowadays these secondary cities are the engine of the country’s growth. So the brands that are not yet on Tmall or other digital platforms relevant to their industry are not only missing the train of digital commerce but also the development of the economy into peripheral cities and the interior of the land: they are out of the game!


Article written by Christophe Jourdain, Ifop International Director.

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From ostentation to experience

The new aspirations of China’s middle class (part 1 out of 4)


Quite like anywhere else in the world, when they join the ranks of the middle class Chinese citizens aspire to consume the brands they see on television or other media commercials and could not afford before. Then, when they go up the income ladder, they seek to express their « nouveau riche » status through the purchase of products that convey a message of financial success: clothes or accessories with visible brand logos, iconic smartphones or unanimously acknowledged alcohols, indicators of wealth such as a car or a nice watch. This is what makes the success of Western brands should they offer daily products such as Nestlé or Gillette, or luxury ones such as Louis Vuitton or Rolex.

This consumption is driven by the desire to access new forms of gratification by conforming to a norm, to what is well recognized by all. The new consumers that go along this path now mostly come from Tier 3 and Tier 4 cities which are the ones inflating the ranks of the middle class today. To a certain extent they behave like their predecessors from the last 15 years primarily living in Tier 1 and Tier 2 cities, but in a way comparatively more informed, faster in its progression, fed by new influences (such as the Korean culture very present in Chinese media) and new codes of success which are no longer exclusively materialistic. For example, travelling to major traditional destinations such as Paris, London, Tokyo or Singapore has become a widespread way of asserting a certain status.

On their side, members of the more « experienced » middle class, who accessed this category of population several years ago and are often more educated, more in contact with influences from outside the country via travels, friends or colleagues as well as internet, push this aspiration for experiences further. They are less inclined to show off visible signs of status and rather seek more experiential forms of accomplishment: going to the movie, visiting a theme park, tasting a good wine, going on a unique journey, accessing culture. The consumer shifts from the product to an experience, from a desire to conform to a desire of independence.    


Article written by Christophe Jourdain, Ifop International Director.

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The new aspirations of China’s middle class

As opposed to the middle class in Western countries, which tends to shrink under the effects of a slowing economy, China’s middle class is growing rapidly to the point that it will exceed 600 million individuals within ten years. Here is a huge reservoir of consumers able to spend beyond their primary needs and to access branded products which explains why China has long been and continues to be a very strategic market for international brands.

China’s middle class evolves at a scale and speed with no equivalent in the history of humanity. Currently estimated between 220 and 380 million people, it is joined by about 2 million new individuals every month, it is spreading across the interior of the country, towards Tier 3 and Tier 4 cities, among younger age groups and towards ever more connected daily habits.

Along with this transformation new aspirations arise, which companies need to fully grasp and understand if they want to be able to develop their business in the direction of Chinese consumers.

In our next 4 articles on China Inside we will share with you some of the new aspirations that shape the behavior today’s Chinese middle class.


Article written by Christophe Jourdain, Ifop International Director.