The diversity
China has 654 official cities, whose urban population ranges from over 20 million residents for Shanghai to less than a hundred thousand for a small county level city. The cities differ not only in terms of the population but also in terms of economic activity, occupational profile, income and spending ability of the residents. As the top tier cities become more competitive and saturated, more and more companies are taking their wares to the smaller towns in search of new consumers. The important marketing question is whether the marketers should paint the smaller cities with the same brush stroke and replicate their large town strategies and tactics for these emerging markets, or should they modify and fine-tune their actions to enhance their effectiveness?
City tier or geography
There is a school of thinking which propounds that city tier differences are becoming less consequential and geography takes precedence in determining consumer behaviour and not city tier. It is expected that the differences between neighbouring large and small cities will gradually diminish and consumption patterns become more homogeneous. The reasons are because development of better transportation and high speed railways will encourage more movement among the cities and the large cities will expand their boundaries and take some of the neighboring cities under their fold,. However there are intrinsic differences between large and small cities (population is the usual basis for dividing cities into various tiers) in terms of consumer profile, lifestyle and media habits which have significant implications on marketing.
In Shanghai over 3.2 million adults enjoy a monthly household income of over RMB 100,000 and in Nantong, just 100 kms away, only around a 100,000 adults have the same income. The relative strength of various media is vastly different across different city tiers. While internet penetration is increasing in lower tier cities also, the frequency of use is much higher in larger cities as compared to the smaller cites (78% of internet users access the net every day in tier1 cites as compared to only 28% in tier 4). Similarly while nearly all large city internet users access the internet from a PC at home, in smaller cites, reliance of iCafes is significantly higher.
It is natural that in a geographical cluster of homogeneous cities, similar strategies would work, but when the cities within a geographical cluster are heterogeneous, different strategies need to be adopted.
Implications for retailers
Despite the differences today, the smaller cities are in transition and a huge change is underway - the change is in terms of movement from traditional trade to organised trade, from primitive modes of transportation to modern ones, from old run-down houses to modern swanky apartments, and from traditional entertainment venues to the modern ones. Malls and retail outlets need to help the consumers in this transition – facilitate access the new things they want and at the same time help them preserve what they cherish from the old. We give below eight implications for marketers and retailers as they move from large cities to smaller ones.
1. Consumers in small towns want to make the best choices and derive the best value for their money. In order to achieve their aim they are willing to go to greater lengths than consumers in larger cities, who are more driven by convenience. Convenience, therefore does not enjoy the same importance in smaller cities as it does in larger cities. Consumers in large cities are time poor and cash rich - whereas for those in lower tier cities just the reverse holds true.
Store designs often have to make trade offs between convenience and thorough immersion and good exposure of the consumer to the full range of products. The trade-offs in larger city tiers are often made in favour of convenience. One exception to this rule is IKEA stores, which even in big cities sacrifice convenience for exposure. The IKEA strategy is the one which retailers need to follow in lower tier cities - let the consumer see the products properly, have a good experience - even if it takes more time and causes a bit of inconvenience.
2. Access and location. Most small towns and cities have a predictable lay out with a central area clearly defined and marked out. Consumers often converge to the centre and public transportation often runs from the centre to the outlying areas. This central area, therefore presents the most logical location for retail establishments. While a central location may still be possible in smaller cities, over time newer malls and departmental stores have no option but to open in relatively distant areas. Retailers need to have a strategy for attracting the consumers to the store in these locations. This could include free transportation, identifying potential transportation hubs such as metro stations or addition of some specific services to the mall. Mall owners and retailers must study the local situation in each city and decide on the ways to compensate for location deficiency if it exists.
3. Educate the consumers. Given the relatively small history of branding and quality products in China, many buyers are first time buyers. Over 50% of luxury goods buyers today have never bought luxury before. Retail outlet for them is therefore not just a final purchase point, but a place to evaluate the various alternatives - often with no prior experience. In this context, the consumer may often be confused and the retailer may lose the sale if the consumer is unable to decide. The retailer in small cities has the job to educate and guide the consumer and help them make the decision.
Recognising this, many marketers add in-shop demonstration and education activities to help consumer make the choice. Hydron, an eye care brand, established mobile stations in low tier cities’ which offered eye examinations and eye health communication for students. Hydron built its brand image through its exceptional consumer education efforts and was selected as one of the “Most popular brands” by college students in China. Another brand which has done consumer education rather well is Nokia - which opened a number of small shops in over 600 prefecture-level and county-level cities. These shops also offer product demonstration to help consumers better understand the product capabilities and accept its price.
4. Localize marketing programs. Localization of the marketing programs is warranted from several perspectives:
- Firstly the media environment is different, with the role of outdoor media, outdoor activities and social intercourse in public areas such as the public square being higher
- Secondly in order to develop credibility at the local level, the retail stores need to develop and demonstrate local support and roots. Enlistment of local well known personalities need to supplement the use of international and national spokespersons or communication. Local dialect is often used by retailers to strike a chord with the population.
- Lastly traditions and festivals play a greater role in smaller towns and cities and hence provide a greater opportunity to leverage for sales promotion.
Localization is required not just for the marketing activities but even for the product range itself. An example of a retailer which has very successfully used local marketing is Ling zhi or Bestseller Company whose brands include JackJones, ONLY and VERA MODA. Ling Zhi's annual revenue in China has increased by an average of 20% a year in the past 3 years. It has more than 3000 shops in China and around 1000 shops are in Tier3 or Tier 4 cities, and a few hundred even in Tier 5 cities.
5. Make the customer feel at home. 91% of the consumers in small cities said that good staff attitude is a strong factor in their choice of the store. The retailers need to make the shopping environment attractive, but at the same time not too alien - the consumer should feel drawn but not daunted. This is not just about providing excellent service - but it is about making the consumers feel absolutely comfortable in the environment, where they are not shy to interact with the product or the sales staff. A significant number of Chinese internet users comment positively or negatively about brands on the internet and one of the things that makes them comment is their experience of service. There is a lot of positive buzz on the internet nowadays about a girl and her boy friend who had a stormy scene in Hai Di Lao hot pot restaurant. The waiter sent them a card and flowers trying to bring them together again.
6. Simplify. The range of available products in China has multiplied several fold in a short period of time. The number of options that the consumers are suddenly exposed to is bewilderingly large. Behavioral science has told us that "too much choice" is confusing and some times leads to loss of sale. Retailers in lower tier cities needs to strike a balance between offering consumers enough choice so to meet their needs, but at the same time not get totally confused. Shelf displays need to be designed with this objective in mind. Displays can be designed at two levels - with a primary display in the front , and a secondary display to be accessed if the customer needs greater choice. Retailers need to experiment on this count and reach the optimal display configuration for them.
7. Leverage the internet. E-commerce has penetrated well into China's lower tier cities. In fact one of the reasons why lower tier consumers do online shopping is because premium and luxury brands are not well distributed in these cities. The success of Taobao in lower tier cities bears a great testimony to this. We also know that while online shopping is attractive to consumers, there are also certain barriers. Most importantly trust, fear about quality or fake products and payment and delivery related issues are thorny points with the consumers. We also know that there is a multi-directional traffic and interaction between online and offline stores which includes online search and offline buying, or offline evaluation and online buying for lower price or any other reason, or even online search, offline examination and finally online buying.
Retailers should develop a concerted strategy to link their offline and online stores. Computer terminals can help the customers surf the online store for greater variety and selection. The retailer can arrange for the customer to order from the online store and pay in the offline store and collect the products. Burberry recently provided all their in store sales staff with an iPad. The staff can use the iPad to expose the consumer to a larger range of products or explain product qualities better.
8. Not just shopping. Perhaps an obvious point, albeit an extremely important one. General attitudes towards shopping are different in China as compared to the developed world, and within China in the lower tier cities as compared to the key cities. Shopping is not a routine chore - but something to be enjoyed and relished. it is a source of entertainment and a shopping trip can be an leisure outing. Consumer attraction to shopping malls will increase if they could add more supplementary entertainment activities to truly make shopping a leisure activity.
Written by Ashok Sethi
Ashok.Sethi@tnsglobal.com
