The Myth of China’s Lower-Tier Consumers

on September 30 2013 | in Beauty | by | with No Comments


Think you know consumers from China’s lower-tier cities? Maybe not.

When it comes to China’s beauty industry, there is a chronic – and false – stereotype that consumers in tier-three, -four and -five cities are less educated and less willing to spend on beauty products, says WWD. But Jason Yu, general manager of Kantar’s Shanghai Office, says that women in China’s lower-tier cities are willing to pay a surprising premium for beauty products.

Yu said, “People have this misconception that lower-tier consumers use less beauty products than those in first-tier cities. For men, that’s probably true, but for female consumers, we didn’t find substantial differences in beauty usage, in terms of number of products used.” Researchers for Kantar using panels of 40,000 families across China have found that women in third- and fourth-tier cities use seven products in their daily beauty regiment, while women in first-tier cities use eight. Interestingly, it’s the women in the lower-tier cities that are most interested in emerging products like eye toner and serum.

“In the big picture, there’s not really [a big difference],” said Chris de Lapuente, CEO of Sephora, “It’s such a vast country there may be some assortment tweaking—for example, the northern cities having earlier drives on moisturization than the south because of the drier weather.” And Kevin Chong, a Shanghai-based partner of Bain & Co., said that women buying beauty products in lower-tier cities are more informed than is usually assumed. He noted that women there do have less brand loyalty, however, because they are still in the “repertoire” stage of purchasing. They are figuring out which products they want to incorporate into their regimens.

Chong said, “The major misconception is that these consumers are a lot less sophisticated, but with the Internet and [because] many of these consumers spend time in more affluent cities and know what the brands are, they are actually more sophisticated than some brands think they are.”

Carsten Fischer, senior executive officer of Shiseido, said, “we don’t consider that there is much regional disparity regarding consumer’s knowledge about cosmetics or demand.” He does acknowledge, however, that there are fewer opportunities for a consultation with a beauty expert than there are in larger areas.

The biggest difference between beauty consumers in the first tier and beauty consumers everywhere else is the brands that are being purchased. While international labels like Estée Lauder, Clinique, and L’Oréal are prevalent in first-tier cities, more affordable Chinese brands found their entry point in the lower tiers. Chong said, “In the smaller cities, consumers are more likely to be using local brands, or even counterfeit products or copycat brand names. The product is definitely different, but in general, the kinds of products people are using are very similar.”

MEC Global has released statistics that suggest e-commerce is growing in the lower-tier cities: penetration there has tripled, they say, from 11 percent to 30 percent over the past two years. Statistics from Alibaba show that sales in lower-tier cities grew more than 60 percent in 2012, while first-tier cities saw growth rates of less than 40 percent year-on-year.

That doesn’t mean, however, that a web platform will guarantee cosmetic sales in the lower tiers. “You can communicate as much as you want,” said Fabrice Weber, president of Asia Pacific for the Estée Lauder Cos. Inc., “but the element that will allow you to perform and win is the education of the individual consumer.”

photo credit: sunshinecity

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