Capitalizing on opportunities offered by lower tier cities in china

China is not only the world’s second largest economy but also its dominant engine of growth. However in recent years this economic growth has come under pressure because of multiple reasons, both internal as well as external. This decline in growth rate is having a consequent impact on the way the Chinese government sees as its best way forward. It is striving to increase domestic consumption, encourage services sector and keep a check on inflation.

Adding more complexity to this business context is the more crowded and fragmented market, maturing Chinese consumers, impact of digitalization and smart phone and not to mention declining consumer enthusiasm.

Until recently business opportunity in China was limited to big 3 cities and handful of tier 2 for most multinational companies. The above dynamics means the attractiveness of this opportunity is increasingly fading and multinational brands are being forced to look deeper in to the Chinese landscape for new emerging and hitherto untapped markets in lower tiers.

Are the Lower Tier Cities Next Eldorado?

So this begs the question, do lower tier cities offer the same opportunity as that of their higher tier counterparts? In fact, the opportunity that lower tier cities offer is humungous compared to what their higher tier counterpart’s offer and moreover it remains untapped to a large extent.

Over the last decade or so, Chinese government has embarked on a mission to increase domestic consumption and thereby lower China’s reliance on exports. In the process, they have increased their investments in lower tier cities even in the central and western parts of the country and emphasized urbanization by providing housing and civic amenities.

These efforts have paid dividends. According to one estimate, tier 1 and tier 2 combined only accounts for 17% of the national GDP i.e. to say lower tiers combined account for a whopping 83% of the GDP.  However, given the higher tier fixation of most multinationals, it means the focus has been too long and too much on higher tier cities.

Although Tier 3 and 4 have a disposable income half of Tier 1 but given a population approximately 10 times over, it means the potential is not only huge but waiting to be tapped into.

However Opportunity Doesn’t Directly Translates Into Profits

The big question is how to capitalize on this huge opportunity. The challenges are numerous and not very obvious. To begin with, the sheer number of such cities in lower tiers with a million or more is in excess of 200. So which all cities can a brand focus on?

Are these consumers like their higher tier counterparts or do they shop differently with different motivations and preferences? From my experience I can do say that they are definitely different given the context and circumstances that differ across tiers.

So is there a better way to target these consumers? The answer is yes and it’s everywhere around to see.

The Internet Can Make It Possible

Huge proportions of the Chinese population are not only online but are willing to go the extra mile by engaging in it. Lately social media and e-commerce boom has engulfed the country, fueled in part by the high smart phone penetration and also with the more prominence of big players in the market like Wechat, Taobao and Jingdong.

The lower tier cities are not lagging behind on this bandwagon. In fact they are taking to it like a duck takes to water. According to one estimate, the proportion of lower tier city households with internet access is in excess of 50%. This figure is only like to go up and go up fast considering around 85% also have access to a smart phone. These consumers are using internet not just to communicate, exchange or explore but also to buy products and services.

All of the above means, the lower tier cities have opened up for business and are not inaccessible the way they were a few years ago. With a right business strategy and fresh mindset, it is indeed possible to capitalize on this opportunity offered by lower tier cities.

There are as many ways to do it the right way as there are ways to do it wrong. The success depends on the way a brand will understand these consumers, customize its offering and then make itself available through relevant channels.

 

Article written by Manohar Balivada, Vice President, Ifop, Shanghai  

The rising attractiveness of local brands

The new aspirations of China’s middle class (part 4 out of 4)

 

Faced with the rising position of China on the world stage and the success of high profile local companies such as Tencent, Alibaba or Xiaomi, the Chinese middle class expresses growing pride and trust in the leadership capabilities of its country in terms of economics and lifestyle, which translates into an increased interest for local brands. These are perceived as much more price competitive and often better distributed across the country than their Western counterparts, faster at taking positions (launching new products, opening points of sales in new places), efficient at adopting communication codes that appeal to the locals and also more and more often innovating. This is what makes the success of Herborist or Inoherb in the field of cosmetics, Haier or Midea in household equipment, BYD in automotive.

As a matter of fact, the middle class emerging in peripheral cities has been less exposed to foreign brands, usually concentrated in Tier 1 and Tier 2 cities, than the previous waves of rising middle class. It turns more naturally to local brands in its daily life, even in categories traditionally dominated by foreign players such as beauty products or sports goods.

This growing competition from local brands has become a major issue for international brands in China. Its impact is probably stronger than the slowing growth of GDP on which Western media tend to focus but which does not yet impact the propensity of consumers to get richer. Local brands eat up foreign brands market shares and develop an intimate relationship with consumers, a factor of lasting success. In front of this, the reaction of large international groups sometimes consists in acquiring these new competitors, like when L’Oréal purchased the Chinese leader of beauty masks Magic Holdings, or to develop alliances like Danone with Mengniu in the field of dairy products. But the key trend is there: local brands are progressively developing the attributes of genuine brands, Chinese consumers aspire to consume them and this is changing the rule of the game in the China market.

 

Article written by Christophe Jourdain, Ifop International Director.

The Korean influence on Chinese consumers: from entertainment to plastic surgery

Most consumer markets in China evolve under the mixed influences of local culture, Western lifestyle spreading globally as well as regional trends. In the latter Japan, Taiwan and Hong Kong traditionally tend to be sources of inspirations for Chinese consumers but in recent years South Korea has really been the place of influence, especially among young generations.

This Korean “wind” is driven by popular culture. While everyone in the Western world probably only knows Psy and his famous Gangnam Style, Korean pop (Kpop) groups like EXO or actors Lee Min Ho or Kim Soo Hyun are superstars in China with tens of millions of followers on Weibo. And what do the people of Beijing, Shanghai and Chengdu watch on their mobile phones while riding the bus to work? Korean TV series or K-drama, miniseries that run over just a few episodes and generate collective fascination.

This presence of Korean stars on Chinese screens drives aspiration for the Korean look: a perfectly oval face with large eyes for girls, a soft attitude but muscular shape for men, all in a discrete, fashionable, not too sexual style, more relatable and aspirational than many images spread by the Western culture.

Korean fashion and beauty brands benefit from this trend and have become major contenders for global and local players in China. Cosmetic brands like Etude House and Innisfree are seen as offering quality, accessible products specifically adapted to Asian skin, with a relatable communication style and the advanced digital literacy that Koreans and Chinese have in common. Building on their affinity with consumers who have the world’s most sophisticated make-up routines, Korean companies are also well positioned to develop new products that meet emerging needs. It is in Korea that were first launched the BB cream and CC cream that later spread to China and on to the whole world, a good example of how innovation no longer only flows from West to East but also more and more the opposite way.

Another big trend is cosmetic surgery. According to ChinaDaily 56000 Chinese people travelled to South Korea last year to undergo plastic surgery, more than 3 times the figure of the previous year.  Inspired by Korean entertainment industry idols, Chinese consumers cross the Yellow Sea to undergo procedures such as double-eyelid surgery to gain Caucasian-style eyes, nose jobs leading to more prominent nose bridges and facial contouring to achieve an oval shape via shopping away bones. Travel agents are now offering plastic surgery based packages to Korea. And Korean surgery expertise is also moving to China as last year 37 South Korean owned plastic surgery clinics opened in Mainland.

This impressive impact of Korea on Chinese consumer behavior is a good reminder to Western brands of a couple of constant truths about the China market: consumer aspirations are specific, more complex and diverse than they may seem, and in order to succeed in what is now a super competitive market brands need to work on being relevant locally.

Chinese vs Brazilian women: Which part of their bodies are they willing to invest more on?

Living Beauty, the latest study by the cosmetics beauty division at Ifop, focused on major mass markets China and Brazil. 600 women aged 18 to 55 were surveyed in each country to identify different women profiles in terms of their aesthetic concerns.

Although the relationship with beauty cannot be defined the same way in the two countries – it is all about pleasure and sensuality in Brazil, while China focuses on control and safety – several common features actually bring these two countries’ consumer profiles closer.

The cosmetic market in China is growing fast and offers more and more sophisticated products, analyzes Laure Friscourt, Head of Consumer & Beauty Division at Ifop. It is to be noted that anti-aging products are widely represented, with 60 per cent to 70 per cent penetration, and that the local, more and more premium Chinese brands are strongly developing. In addition, women mainly seek naturalness and guaranteed safety as a result of the high impact of pollution.

Brazilian women expect these same benefits from cosmetics, in a country which possesses the largest wealth of natural raw materials and cosmetic actives. Brazil is unique in its approach of body hygiene and beauty. It is characterized by a great ethnic diversity, and it is also the country where the hair is king. Just like in China, it is a market that counts more and more premium brands and whose consumers expect to get a lot of advice.

In Brazil, beauty lies in the way people seek both wellness and/or social integration, while it still often has to do with achieving a status of one’s own in China, while finding an ‘internal health-external beauty’ balance.

Six types of profiles identified
The study identifies six women profiles in both countries, ranging from over-committed women, who are quite numerous in Brazil and would do anything to achieve perfection, to the health-natural group, which gathers 21% of Chinese women. Then, in the middle of the mapping can be found two interesting profiles of women with a relationship with beauty that has not matured yet, in particular for 25% of the Chinese.

The belly as a source of dissatisfaction
The women were surveyed on the body parts they are the most satisfied and dissatisfied with, and those on which they are the most willing to invest. The results unveil the areas to be studied by cosmetics brands.

And it comes as no surprise that the first clear result is the importance of the hair in Brazil, and of the eyes in China. Yet, when Brazilian women are asked which body part they are willing to invest more on, 58% of them answer their bellies. Then 40% mention their hair, followed by the lower part of their bodies (bottom and legs). By contrast, Chinese women declare they are willing to invest more on the upper part of their bodies: 70% of them mention their faces, 30% their chest, neck and shoulders.

This contrasting approach can be explained by the different lifestyles and cultures, but again, it also conceals a common preoccupation. Indeed, even if they say they are not ready to invest more on this area of their bodies ‘yet’, most Chinese women also admit they are not satisfied with their bellies.

This article is based on research published by the Beauty division of Ifop and adapted from a publication by Kristel Milet in www.premiumbeautynews.com

SELF Beauty White Paper 2014 : the transforming habits of Chinese women

Ifop Asia recently partnered with SELF (悦己), the well-known women lifestyle magazine, on the edition of the White Paper 2014 which was released in its December issue. The magazine wanted to gather insightful knowledge about the Chinese beauty consumers and asked us to investigate Chinese women’s needs on anti-aging, whitening, foundation as well as their perception, acceptance and usage towards the latest products, new concepts, and new trends in the beauty universe.

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The new chinese consumer

China has become a huge and essential consumption market. Its enrichment brought a society of consumers where rich elites go alongside a middle class who displays its purchasing power. This population of over 350 million will continue to grow to reach 850 million by 2030. The Chinese consumers of today – and of tomorrow – will not be those of yesterday.

In a time of global economic crisis, most experts consider that domestic consumption is what stimulates the growth of China. For now, China is still the major country where consumption represents the smallest percentage of GDP, less than 50% compared to about 70% in Europe and 80% in the US, while investments represent nearly 50% of GDP vs about 15% in G8 countries, a record in economic history. This shows how much room there is for consumption to grow further.

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