Ogilvy Report: Marketing in China's Smaller Cities

A new report from Ogilvy China says:

China's 4th-6th tier towns, which account for 37% of China's population, have notably different consumer cultures and retail landscapes not only from the major metropolises of Beijing, Shanghai and Guangzhou but also from 2nd-3rd tier cities, according to "China Beyond," a new study released today by Ogilvy China. Moreover, what works in big cities for marketing firms and brands may not work in the 4th-6th tier locales which range from prefecture level cities to county level towns. Nevertheless, a vast opportunity exists for companies that can tap into local and regional psyches and lifestyles.

Data from China Statistics Handbook showed that rural average disposable incomes in China were 5791 RMB per year in 2008 and continued to grow at a rate of 10.3% in the first half of that year (HSBC, China Economic Spotlight, Aug. 2008). "This demonstrates the huge market potential in lower tier cities. With the government stimulus package directed at small town and rural China, it is expected that these consumers will dip into their savings and give China's economy a helping hand. But for them to do so, companies need to understand what drives their needs, aspirations, and ultimately purchase decisions," said Shenan Chuang, CEO of Ogilvy & Mather Group China.

Notably, the study finds that:

• With the influx of migrant labor, communities have established new rules of engagement and trust. The "web of favors" replaces the time-honored, high-trust relationship in small communities. This is where small, local companies compete with big corporations – by offering timely, relevant and free services to all community members.

• The pace of development is amplified by the anxious youth and their relationship with technology. Most young people, though optimistic about the future, do not know how to use the Internet for information, education and better opportunities. Their online behavior mirrors the lackluster, drab realities of a provincial life. Brands that are able to redirect some of the pent-up energy to fuel entrepreneurship, creativity and consumerism are likely to benefit.