Think Big About Going Small … Winning Consumers from Lower-Tier Cities

on October 1 2012 | in Retail | by | with No Comments

Starbucks, China

With sales figures in more stable markets reflecting a period of economic uncertainty, it’s time for marketers in China to think big about going small. That was the buzz topic at Market to Watch: Building Brands Beyond Tier One in China, a conference held in Shanghai this past September.

China gets divided into five tiers by most marketers; big citiies like Shanghai and Beijing make up tier one, and small rural villages account for tier five. The tiers are based on size and local incomes. The experts continue to say future market growth lies beyond the first tier.

Paul Hu, managing director of the Volkswagen brand Volkswagen Group Import China, suggests that the increased purchasing power of the lower tiers “may be the biggest shift in marketing in China since the opening of the country in the 1970s.”

But marketing to the lower tiers requires different strategies. Citing a case study from Phaeton luxury sedan, Hu suggested that the lower tiers appreciate cars that are functional more than flashy, and that represented a good value in addition to being high quality.

Hu also notes that many purchases require the approval of family and friends, as buyers outside of tier one are less likely to want to stand out in a crowd. Many people in these markets follow an oft-repeated Chinese phrase: “The leading goose gets shot down.”

Because of the more relaxed lifestyle enjoyed by people in lower tiers, they also expect more time to make major decisions, like what big purchases they should make. They would also rather buy a product from a brand that is used by all – and that can thus be considered reliable – than to take a gamble on a little-known or unproven brand.

Dongsheng Li, the China Advertising Association’s chairman, said that many companies haven’t yet entered second-, third- and fourth-tier cities but realize they need to since consumers’ incomes there are steadily increasing. Li also said that the Chinese government understood the important role media now plays in marketing, and that the association will be developing policies and incentives to encourage growth.

Gilles Beroud, general manager Asia for Yves Rocher, was asked how he determined what lower-tier city to open in next. “I wait for Starbucks to open,” he retorted.

And speaking of Starbucks, the international coffee chain offered up details on how they are adapting to lower-tier cities.

In Fuzhou, for instance, a small town of 7 million, Starbucks just opened a flagship store that heavily relies on local culture. Ad Age aptly described the store as having: “sliding doors, soaring ceilings and a screen inspired by the black and white playing pieces of the chesslike Chinese game weiqi. Outside, a big rock from the nearby stone mountains will be engraved with the Starbucks logo.”

With this big investment, Starbucks is banking on having a flagship model for small cities with huge growth potential.

Starbucks’ chief of marketing for China, Marie Han Silloway, summed it up: “In China, you have to be strategically tactical.”


photo credit: david gomez-rosado

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