By  on March 18, 2013

BEIJING — As China’s biggest cities grow saturated with major brands and consumer products, retailers are looking beyond Beijing and Shanghai at the country’s smaller markets, where new opportunities still abound.

But cracking the code of consumers who live in China’s smaller cities — routinely referred to in the marketing world by a “tier” structure according to their population and development — can be tricky business. Second-, third- and fourth-tier cities hold tens of millions of emergent consumers, but buying behavior in China’s less-developed, smaller cities does not always mirror what companies understand in the largest cities.

In a new report, Kunal Sinha, chief knowledge officer at Ogilvy & Mather China, explores what consumers in small cities in three Chinese provinces buy and why. Speaking about his research on Thursday, Sinha described how residents of China’s second-tier cities and beyond live, work and shop differently from their counterparts in major Chinese markets.

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Sinha’s research focused extensively on young people, noting that many who live in smaller cities are those who either didn’t have a chance to live out the dream of moving to Beijing for work or realized it and found it wasn’t what they expected. With inflation, particularly for housing and other essentials, life in Beijing is prohibitively expensive for many.

“It simply doesn’t make sense for them to stay in these cities anymore,” said Sinha. “They’re beginning to question, ‘Is this the kind of life I want? Is this what I gave up my life in a for third-tier city.’”

With that, and thanks to economic development in the hinterlands, China’s smaller cities are booming and growing. Sinha noted that China is estimated to build an entire Manhattan’s worth of skyscrapers every two years. Shopping malls have become integral parts of lives in smaller cities, serving not just a retail purpose but also as social gathering and entertainment zones.

Online shopping is critical for smaller cities, he said. Often, consumers will travel to bigger cities to buy big-ticket items, but they will also test products, then buy them online rather than in a shop. The growth of Internet commerce has also been a boon to entrepreneurs, allowing many in smaller cities to work for themselves by selling online.

Smaller cities tend to be safer, cleaner, more livable and their residents have more leisure time and perhaps a higher quality of life.

“It’s all really exciting for people living there and for those who chose to go back,” he said.

For companies, Sinha has a strong message: Get on board with understanding consumers in China’s smaller cities or miss a massive opportunity.

These consumers “are going to shape the way business operates as we go forward. So don’t drop the ball.”

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