With 200 million households belonging to the consuming classes, China’s second to fourth tier cities are arguably the most important consumer segment in the whole world. But they are tight-fisted. In 2011, advertising spend in Tier 2-3 markets was 4.37 times that in the Tier 1 markets, while the consuming class population is 7 times greater.
For the third time in the last seven years Ogilvy & Mather China’s consumer insights and trends team Discovery revisited these lower tier markets. Between August 2011 and March 2012 the team, in cooperation with TNS China, conducted field research in 3 provincial capitals (Chengdu, Changsha and Shenyang), 3 prefecture level cities and 3 county towns in Sichuan, Hunan and Liaoning provinces, covering a diverse expanse of geographic, cultural and economic regions. The study was conducted through home interviews with 48 families, 60 retailers, and 15 internet cafe owners, combined with observations in shopping malls and public parks. 80% of the respondent families were native to their city, 20% were migrants. The quantitative study, amongst 2200 middle class families, surveyed their beliefs and attitudes towards family, life, risk, novelty, ambition and fashion. The study also aimed to map out their shopping, media and entertainment habits and identify influences on purchase decisions.
What did we discover?
There were some constants, and there is a lot of change that has occurred here. While the traditional values in the form of family ties remain intact, there is the emergence of a new breed of youth who do not necessarily want to abide by the expectations of their family. Spurred by job creation in the hinterland, the availability of good quality housing and education, and a relaxed pace of life, the first wave of reverse migration is in swing: particularly amongst those who went to Beijing, Shanghai and Guangzhou a decade ago only to find that after years of hard work, they can neither afford to buy homes or cars, nor pay for their child’s education. Such is the interest in new brands that shoppers are embracing e-commerce with enthusiasm, snapping up deals on goods that are not available in their local shops. The residents are hungry for new experiences, and local business people who are able to offer them in the new shopping malls can keep them occupied for hours – because these people have the time.
Notably, we found that:
- Food safety, environmental pollution and the rising cost of property and healthcare are the top concerns. These fears are based on the residents’ own experiences, amplified by the rapid sharing of experiences through the internet. Some local brands are tapping into this anxiety by marketing their products as ‘ecologically safe’ or natural – even as the consumer remains skeptical about these claims.
- There is a rise in compassion, a belief in community values that is leading to community action. Many young people, particularly the post 90s generation that was once labeled as being selfish and ungrateful, are coming forward in order to make a difference. This is an expressive generation, their response to events and news is usually very emotional, and their solutions to problems often creative.
- Lower tier residents appreciate their more natural and relaxed environment. In comparison to 2nd tier cities, many of which are currently in the midst of a construction boom, those living in tier 3 and 4 believe that their towns are not polluted, offer a more relaxed lifestyle, have lower living costs, good public transportation and good public security. Interestingly, a majority of 4thtier residents want to be entrepreneurs, whereas those in the 2nd and 3rd tier would prefer stable government or SOE (state-owned enterprise) jobs.
- There is seasonality in purchase that goes beyond Chinese New Year. This is most marked when teenage children leave home to go to university, or – importantly for the lower tier – join the army. Parents buy their children new mobile phones, laptop computers, sports wear and casual clothes, all deemed necessary for their challenging years ahead. China has also come up with its own version of the Thanksgiving shopping orgy: Singles Day on November 11, when online retailers racked up huge sales mainly from tier 2-4 shoppers, many of whom lapped up discounts on winterwear just at the onset of the season.
- The affinity with open spaces continues to be strong. As reported in the previous studies, in lower tier cities, many engagements and interactions happen in public. There are however, many more opportunities and spaces for people to hang out and spend time with their families and friends. New public parks have emerged, as have ‘scenic pots’ near the cities. The new shopping malls have large interaction and entertainment zones where brands are encouraging visitors to sing, dance, roller-blade, fly kites, and paint on graffiti walls.
- Counterfeit brands have taken their game upmarket. Three years ago, we found lots of fake FMCG and consumer durable brands. This time around – perhaps because of crackdowns on harmful products by the local authorities, they were not as visible. Instead, we found copycat luxury hotels : Hiyatt (fake Hyatt) and Marvelot (fake Marriott), fake fashion brands like Jack Walk (fake Jack Jones, right next door) and S-Squared (fake D-Squared). As the first wave of luxury shoppers takes root in the lower tier, this will be a learning experience for them.
- The mobile internet has taken over, and online shopping needs local connectors. Youth and itinerant entrepreneurs alike are using QQ rather than sending text messages, they are comparing prices before deciding where to buy, and listening to music over a digital device is the most preferred leisure activity across the city tiers. As a brand, Apple enjoys universal recognition, but few people own it, saying that other brands were ‘good enough for their needs’. Much as they appreciate the choice, deals and convenience of online shopping, many are unsure about the quality of goods and seek guidance from experienced, trusted sources within their wider social circle.
In many ways, China, though still vast, has become a considerably smaller country in the three years since we last took a deep-dive look at its inner provinces Its lower tier environs are no longer a world away. Not least among the drivers of this change is the expansion of the internet, and other digital innovations, which have meant that Chinese consumers are much more aware of the world outside their town or city than they once were, even if they have not migrated themselves. Not only do lower-tier consumers know more about the way their country is run, informed by a diversity of information sources beyond the reach of State monitoring, they are also are able to participate in movements beyond their immediate environment, to comment on and contribute to debates on issues until recently beyond their reach, and to satisfy their desire for the high-tier income, lifestyle and shopping opportunities, whilst also remaining close to their families in their lower tier.
Five years ago, we found that people in China’s small towns were fiercely protective and proud of their traditional crafts and culture. Now they remain proud, but want to embrace modernity in not only what they wear, but also in the way they’re doing up their homes, in their consumption of entertainment, and even what they’re eating. The local versions of Starbucks are doing roaring business.
China’s home owners may have until very recently not been much inclined to invest hard-earned money in refurbishment and interior decoration, now a surprising number of consumers are living in relatively new homes and choosing to customize their homes; not primarily, as was once the case, to display economic wealth and prestige to others, as one did with a gold necklace or leather jacket in the early days of reform, but for themselves, in pursuit of comfort, or aesthetics, as exercises of self-actualization – in order to fashion for themselves their own worlds.
The macro-economic and infrastructural change has been accompanied by immense social change. It is something of a myth to say that the “Open Door” reforms suddenly changed China from an egalitarian Communist society into a hedonistic, self-centered society. Yet that is the way that a broad swathe of China’s populace talks about the reforms, recognizing that the promise of material comforts and emancipation implicit in the new consumerist culture has been so obviously inequitably distributed – accessible only to those who can pay for it.
But social and economic inequality hasn’t stopped people from investing in the “Chinese Dream”, however: of opening a store and becoming your own boss. This espoused dream recurs with remarkable consistency across the three provinces and the various city-tiers we studied. With similar, relevant consistency, we have found that shows that the ladder for social advancement is just that: a narrow set of progressive steps towards some collectively-imagined future: study like a slave to graduate from high school, get into university if you can, graduate, find a job by fair means or foul, find a spouse, marry and reproduce almost immediately. Our study shows how young people struggle to carve out futures alternative to this model despite immense pressure from the collective cultural imagination.
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