Some crazy statistics said in China 1 billion people still have not boarded an airplane yet; 500 million probably have never used flush-toilet before. This type of demographic population often resides in lower-tier cities, which include 3rd tier, 4th tier or even the ones below.
Local experts are starting to talk about how cost-effective and good quality brands can instantly dig gold in much smaller cities in the country.
So far we have witnessed a handful of success cases by unleashing such remarkable consumption powers. For instance,
The legendary rise of this leading social e-commerce company in China has been mostly attributed by wild popularity from the low tier cities. Over half of Pinduoduo’s customers live in tier-3 and tier-4 cities according to the data in 2018. This three-year-old Chinese internet startup eventually earned a $33 billion market valuation in its trading debut in New York last year.
- ZhengXin Fried Chicken
This fast-food company could trace its humble roots to a small city Wenzhou in Zhejiang province in the year 2000. Today it runs 17,600 chain stores, more than the total numbers of KFC and McDonald’s combined in China, selling 700 million fried chicken chops annually. Half of its chain stores are in fact franchised in 3rd or 4th tier cities. Every dish on the menu is priced around or less than RMB12 (USD 1.5), usually offering a complimentary juice drink.
- OYO Hotel
Now even Indians are coming and they know how to play a “bargain” game better in China. OYO, the budget hotel unicorn, entered the Chinese market in late 2017 and now is suddenly considered the second-largest hotel group in the nation if taking into account its current 10,000 franchises, totaling 500,000 rooms in 300 cities. Its expansion speed in China is at opening a new hotel every 3 hours on its territory map, especially via holding hands with powerful allies and the household names like Meituan, China’s super app of online to offline life services. Even though the distribution of its hotel presence is mainly clustering around China’s eastern region, they tend to take less focus on traditional tier 1 city such as Beijing, Shanghai, but making noticeable marks on New Tier 1 cities which used to be considered as lower tier.
Today experts suggest food/dining sector should hold the key advantage of gaining the battleground of lower-tier. But again it might not be suitable for everyone.
The premium hot pot brand has been trying to penetrate into lower-tier cities in the past few years, but its market positioning might be still considered a bit pricey for the locals. So far the company’s primary strategy is targeting at tier 2 cities.
The torch to light up the road into lower-tier cities is all about promoting your product/service cheap and good enough to maintain high repurchase rate. As simple as the guiding rule sounds, the execution, in reality, can be a lot harder.
By: Cecilia Wu