The first part of the McKinsey survey looks at the Chinese consumer from a geographic standpoint. Traditionally the Chinese marketplace has been divided by cities, which were then classified into different tiers according to their level of relative economic importance. Examples of first tier cities are Beijing, Shanghai and Guangzhou. Examples of second tier cities are Chengdu, Chongqing and Dalian. While popular consensus has been reached on the tier classification of such cities as Beijing and Shanghai, there is much dispute over the classification of many borderline cities like Qingdao and Kunming. What the McKinsey findings reveal is that this traditional tier classification system is losing importance as wealth spreads across China and the trend towards urbanization continues.
Their findings suggest that regional characteristics are becoming more important in developing strategies that target Chinese consumers. McKinsey estimates that by 2030 over one billion Chinese will live in cities and account for 90% of national consumption. In the future, consumption patterns will not be confined to single cities, but instead will play out among different regions as migration between neighboring cities increases and trends spread within distinct regional clusters.
Take a look at how the following “key buying factors†and “attitudes and behaviors†are differentiated:
(Modified version of original found in McKinsey consumer survey presentation)
Given these findings how can a company in China adjust its strategy to better enable itself to operate in this regional market environment?
Case Study: Carrefour
-By 2006 there were over 100 Carrefour stores distributed amongst first, second and third tier cities.
-Carrefour transitioned from a city tier approach to a regionalized approach by dividing their operations into 4 regions with corresponding City Commission Units (CCU)
-The regions and CCUs have discretionary decision-making authority to determine which products are carried, how they are priced and how they are displayed to best suit the specific region’s consumption behavior.
It is worth noting that although the overall trend is towards regionalization, certain strongly income-driven market areas, like luxury good consumption, may still be best fit by the city-tier framework.
NEXT WEEK: (Part 2) Accelerating demand for premium products…
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