HONG KONG — Investment organizations and multinational companies are plotting their expansion in China’s third- and fourth-tier cities, according to a new report from Asian marketing company Bates 141.
While the first- and second-tier cities such as Beijing, Shanghai and Guangzhou are over saturated, some 4,000 smaller cities still have plenty of growing room for consumer companies, according to the study. These cities are home to 55 percent of China’s population.
According to China’s National Bureau of Statistics, consumer retail spending in China’s regional cities in 2008 stood at 3.48 trillion yuan, or about $511 billion at exchange rates at that time. That figure compares to 1.84 trillion yuan, or $223 billion, for 2004.
Bates 141 conducted interviews with consumers in eight regional cities throughout 2008 and 2009 to better understand their buying habits. According to the report, those living in rural areas evaluate and identify brands by quality assurance, reputation and real life experience.
Consumers in these areas put a premium on brand names when it comes to buying electrical appliances but not fashion, the survey said. For clothing and accessories, consumers in third- and fourth-tier cities opt for lower prices and comfort and don’t see the value of branding; this is most likely due to the lack of advertising and brand recognition in these remote areas, the study concluded.
Bates 141 warned that certain brands could face difficulty breaking into China’s regional markets. It stressed that brand advertising should be succinct and easily understandable so consumers in third- and fourth-tier cities can relate directly to the brand on a personal level.
“From the retail side, efforts should be made in using the Internet to reach these consumers where physical stores may not be available,” said China Peng Gang, Bates 141’s director of integrated strategy. “Brands who want to expand into emerging markets through advertising alone, should not. This is simply not feasible.
“Companies need to integrate their brands into the consumer’s life with a low-profile approach. The correct distribution channels, sales terminals and quality sales staff are crucial.”