The Real China Revealed

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• Which is the largest market
• in China for Humvees?

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• Which city did The Guardian
• refer to as Invisible City?

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• What is the most common (and free!) advertising
  medium in small towns?

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Ad for a Stampmaker fake it!
Ad for Locksmith
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The Real China Revealed

• Insights into the mainlands 2nd and 3rd Tier
  cities

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Where is the money currently?
44.5 population 32 of GDP
4.5 population 4 of GDP
51 population 64 of GDP
Source Asian Demographics
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Only 33.5 of all retail sales in China now come
from the 24 largest cities.
National Bureau of Statistics / Access Asia
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Relative affluence of inhabitants in the main 8
cities will decline

• Compounded annual growth rate of affluent
  households is 17.9
• Number of affluent households in the 8 cities
  will more than double but contribution will be
  down to 33 by 2012
• Note currently middle class are those with Rmb
  28-48K - here forecast of those earning Rmb 80K
  even with some inflation, they should enjoy good
  standards of living by 2012

Secondary cities in the provinces of Jiangsu,
Zhejiang, Shandong and Fujian.
Chongqing, Chengdu, Kumming, Qingdao, Tianjin,
Shijiazhuang and Xiamen
Beijing, Guangzhou, Hangzhou, Nanjing, Ningbo,
Shanghai and Shenzhen
Source Asian Demographics
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Defining the Tiers

• First-Tier Cities
• Four municipalities Beijing, Chongqing,
  Shanghai, Tianjin
• Cities with total retail sales of more than
  RMB30bn, annual per capita income of
• RMB11,000 and high per capita retail sales as
  proportion of income
• 10 provincial capitals Changchun (Jilin),
  Chengdu (Sichuan), Guangzhou (Guangdong),
• Hangzhou (Zhejiang), Harbin (Heilongjiang), Jinan
  (Shandong) Nanjing, (Jiangsu),
• Shenyang (Liaoning), Wuhan (Hubei), Xian
  (Shaanxi)
• Four leading cities Dalian, Qingdao, Shenzhen,
  Xiamen
• Second-Tier Cities
• 17 provincial capitals Changsha (Hunan), Fuzhou
  (Fujian), Guiyang (Guizhou), Haikou
• (Hainan), Hefei (Anhui), Hohhot (Inner Mongolia),
  Kunming (Yunnan), Lanzhou (Gansu),
• Lhasa (Tibet), Nanchang (Jiangxi), Nanning
  (Guangxi), Shijiazhuang (Hebei), Taiyuan
• (Shanxi), Urumqi (Xinjiang), Xining (Qinghai),
  Yinchuan (Ningxia), Zhengzhou (Henan)
• 50 prefecture-level cities, including, Ningbo,
  Suzhou, Wuxi, Wenzhou, Nantong,
• Dongguan, Zhanjiang
• 15 more cities with populations of between
  500,000 and 2mn
• Third-Tier Cities

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Seeking insights into the other half
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Research Objectives

• Understand the consumer in low tier markets and
  how they are different from (or similar to) top
  tier cities in terms of attitudes towards life,
  brand consumption media habits.
• The retail communication study - brand and
  communication presence at different types of
  retail stores.
• Shopper profile and shopping basket -
  observations of shopping behavior, including
  shopper profile and the products brands in
  their shopping basket planned vs impulse buying

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Study sample

• Home interviews photographs 3419 families
• Retail environment 295 hypermarts,
  supermarkets, convenience stores, mom-n-pop
  stores
• Shopper exit interviews 530
• Qualitative in-depth family expert interviews
  20

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Market Coverage
22 cities in 10 provinces, across tier 1 to tier 3
North
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44.5 population 32 of GDP
4.5 population 4 of GDP
51 population 64 of GDP
Source Asian Demographics
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Topline findings and implications
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Consumer Lifestyle - attitudes to family

• Tier 1 residents feel almost guilty of giving
  their careers preference over family, hence
  justifying priorities to themselves.
• Many Tier 2-3 families eat together anyway.

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Consumer Lifestyle - attitudes to life

• Consumers living in tier 1 cities are more
  satisfied than those in the Tier 2-3.
• Over half of those living in Tier 2-3 are not
  satisfied.
• A big city has many more opportunities for
  earning and spending Nanning respondent

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Consumer attitudes - risk

• The majority plays safe, yet there is a
  substantial number of those willing to take risks
  in equal measure across the tiers
• Nude portfolios in Nanjing
• My daughter has left high school and is learning
  how to dance Mr Wang, Lanzhou

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Consumer attitudes - risk

• The majority remains debt-averse China continues
  to be a high savings nation.
• Change marginally greater in Tier 1 cities
• I am confident that I will get a raise this year
  and will pay off my credit card bills Jr.
  Executive in Shanghai.

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Consumer attitudes - ambition

• Tier 1 residents are only slightly more ambitious
  than the lower tiers the majority still does not
  consider itself very ambitious.
• I want to be like Yo Yo Ma

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Consumer attitudes - fashion

• Again, small differences between the tiers. Lower
  tier consumers have huge access to fashion
  beauty, even if it is not always branded. Its
  also cheap.
• Why should I spend 200 kuai on a pair of branded
  jeans when I can pick up 5 stylish pairs here?
  Young woman, Cenxi

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Consumer attitudes - novelty

• Novelty is a big draw. Consumers are looking for
  new ideas in every sphere of consumption. Again,
  across the tiers, and to a slightly greater
  extent in Tier 1.

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Implications - 1

• The brand stories, particularly those around the
  themes of risk, fashion, family, ambition can be
  the same across the tiers.
• However they need to be calibrated.
• Risk-aversion can be countered with confidence.
• Brands and communication will need to offer the
  new even in the lower tiers tired clichés and
  similar products will not work.
• Brands and communication for low tier consumers
  can actually make them feel good about their
  condition, rather than inadequate.

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Attitudes towards brands advertising

• Clear role for advertising it is the source of
  knowledge about brands
• Fair numbers find value in brands greater
  numbers in Tier 1 cities

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Attitudes towards the foreign

• Openness to foreign brands significantly less in
  lower tier towns.
• Greater price sensitivity belief that foreign
  brands are more expensive.

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Brand Preference - Top 10 Favorite Brands
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Influences on purchase decision

• Still a price-driven, price-sensitive market
• Price influences both store and brand choice

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Influences on purchase decision
Average
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Influences on purchase decision

• Price and brand are most important, across the
  tiers
• In Tier 1, people value their own experience in
  Tier 2, others opinions matter in Tier 3,
  packaging and salespersons / shopowners
  recommendation matters more.
• Reflects how and where they mostly shop

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Shop vs Brand - relative importance
Do you first decide which shop to buy or which
brand to buy?
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Shop vs Brand - relative importance
General speaking, the more expensive the
product, the more important the brand!
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Influence of the Little Emperors

• Kids have significant influence on the family
  during shopping as sources of new information,
  but the proportion is lower as one moves down the
  tiers.
• They are among the first to latch on to new
  trends.

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Influence of the Little Emperors

• We spend 40 of our income on our son, to make
  sure he has a good education and is comfortable
  couple in Linxia, MHI Rmb 1100
• Bu jidao their son, upon being asked who the
  cartoon character on his T-Shirt was (it was
  Mickey Mouse)

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Implications - 2

• Role of advertising / brand communication
  experienced by consumers is mostly informative.
• Opportunity to use emotion, creating value
  systems and move to imagery and storytelling.
• MNC brands need not emphasize country of origin.
  For the low tier, cultural assimilation would be
  a good strategy.

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Implications - 2

• Tier 2 3 show a lower degree of shopping
  confidence and individuality than Tier 1 shoppers
• Role of word of mouth much greater need to
  motivate shopowners / shop assistants as well as
  current users
• Need for constant reassurance
• Opportunity to involve kids to spur brand choice
  and aid shopping, even in the low tier

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Some other differences between the tiers
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Food habits

• Tier 1 has significantly more consumers eating at
  fast food restaurants (such as KFC, Yoshinoya,
  McDonalds ) than Tier 3 Tier 3 families remain
  conservative with their eating habits.

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Planned purchase consumer durables
Which ones do you plan to buy a new one next 12
month?
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Planned purchase consumer durables

• More consumers in tier 1 intend to buy new TV in
  next 12 months.
• Replacement market - upgrades
• More consumers in tier 2 plan to buy new DVD
  player, air conditioner and washing machine.
• More consumers in tier 3 are willing to buy new
  mobile phone, computer, digital camera and
  refrigerator.
• Both first-time purchases consumers entering
  category for the first time.

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Shopping Frequency Distance
Shopping Frequency
Shopping Distance
Sample 250 245 135
Sample 250 245 135
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Shopping Frequency Distance

• Shoppers in tier 12 markets go shopping a little
  more frequently than those in tier 3 markets.
• And there are more shops near residence zone in
  tier 12 markets than in tier 3 markets

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Impulse Shopping

• Interestingly, shoppers in Tier 23 markets do a
  bit more impulse shopping than those in Tier 1.

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Impulse Shopping Influences
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Impulse Shopping Influences

• Discounts are the most effective promotion that
  trigger impulse shopping.
• Free gifts and sampling are more attractive in
  tier 1 markets.
• Radio ads and standalone display are attractive
  in tier 3 markets.

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Shopping environment
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TV Program Type Preference
Average
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TV Program Type Preference

• Tier 1 likes sports, music, food, business,
  nature and environment programs
• Time to chill (but cant abandon the quest for
  money)
• Tier 2 prefers local news most
• Tier 3 are more skewed to national /
  international news, education career
• Looking for ways to advance, want to know
  whats happening in the world

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Internet usage

• Internet users spend half as much time surfing
  the Net during weekends compared with weekdays,
  in Tier 1 and 2 cities the difference is
  relatively lower in Tier 3 cities.
• A reflection of many more opportunities for
  entertainment and socializing in the upper tiers.

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Implications - 3

• Significant differences in food habits
• Low tier remains conservative need to stimulate
  demand, offer traditional cuisine in new and
  convenient formats
• Consumer durable co.s must have a multi-tier
  strategy
• Sense of direction for channel planning across
  the tiers
• Use TV to build image, focus on softer brand
  values use local / in-store media to enable
  comparison and trigger impulse opportunity to
  localize

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Thank you!