For over 2,000 years, since the Qin Dynasty, China’s rulers have attempted to organize the vast territory into a hierarchy of political entities.
The government today divides the People’s Republic of China into five administrative divisions roughly based on geography and population: province, prefecture, county, township and village.
Separately, and with some overlap, an unofficial system organizes cities into tiers, based in part on size but mostly on economic development. The tier system is not definitive. Low tier cities in include high-income people, for example, and cities shift tiers as they change in size.
This fluidity, along with China’s size and diversity, make it impossible to create a perfect system for categorizing the nation’s cities. Despite its shortcomings, the tier system is a useful classification devise for companies attempting to understand and do business in a country as sprawling as China.
Research by Millward Brown compares the city tiers by Internet penetration, for example. The research highlights the disparities within China, and the opportunities.
Insights for marketing in lower tier cities
- Leverage synergies within city clusters.
Clusters are defined not only by income and geographic location, but also by economic links and social/cultural similarities. Over time, similarity in consumer attitudes and preferences will also develop. Clustering provides a sizable market with consumption power across a wider geographical area connected by an efficient transportation system. Marketers should leverage synergies in marketing, sales, distribution channels, and even supply chain within the cluster.
- Improve segmentation and positioning.
Marketers need to do better segmentation, targeting and positioning. They then need to come up with a more diverse portfolio of brands and sub-brands to meet the needs of the different consumer segments in third and fourth tier markets.
- Act as a role model.
Brands should be role models for consumers in third and fourth tier cities. Marketers need to understand the values and lifestyles of their target audiences. Then they need to highlight the qualities of their brand’s culture that resonate with consumer desires for more innovative and sophisticated products and services. For discretionary products, communication campaigns should match the consumers’ definition of success and esteem.
- Reassure consumers.
At some point, consumers in lower tier markets, especially the younger ones, have struggled with the question of whether or not to migrate to a first or second tier city. Reassuring consumers that they have access to most of the offering available in larger urban centers is a way for brands to win their hearts. Brand communication can be a means to help consumers close the city tier gap by bringing them up to date via social media and e-commerce.
- Harness word-of-mouth to work for brands.
Peer pressure and word-of-mouth have an outsized influence and importance on what consumers of lower tier markets buy. Cultivate grassroots brand ambassadors to speak for your brands. Also engage celebrities to help promote the brand both online and offline.
- Educate consumers about your brand.
Consumers in third and fourth tier cities are less sophisticated about brands and products than the inhabitants of large urban centers. However, they do less research before purchasing than big city consumers. Brands that are willing to invest in educating consumers may win big.