In their efforts to maintain high levels of economic growth and guarantee the continued development of western provinces and rural areas, China’s economic policy makers have realized that western consumers, especially American consumers, can no longer be counted on to purchase all consumer goods coming out of the manufacturing heartlands of the eastern coastal regions of the Yangtze and Pearl River Deltas. Countless China experts and market analysts alike agree that in upcoming years the Chinese economy must make a shift away from the export-oriented economy of the past 30 years to a consumer-oriented, demand-driven economy, which will hopefully result in the inclusion of another 400 million consumers into the global economy. Trying to grasp the sheer numbers may seem mind-boggling enough, yet for managers in various industries and sectors, only knowing the numbers is no longer enough. As the past years have shown, China’s consumers cannot be thought of as a single homogenous group. Each province in China, comparable to the size of a single country in Europe, has its own history and unique culture and are at different stages of economic development. In the coming years, as western companies penetrate further into China, moving beyond the dynamic but developed markets of the 1st tier cities, marketers, strategists, and CEOs will all have to start asking themselves about the characteristics of Chinese consumers in 2nd, 3rd and even 4th tier cities, about the consumers who live in these fairly well-developed areas but have not yet had the chance to become global consumers. In China, major cities can be divided into tiers based on a number of factors, including population, disposable income, geography, infrastructure, and historical and cultural significance. There is no official government classification of these tiers, but 1st tier cities generally include Shanghai, Beijing, Shenzhen, and Guangzhou, whereas second tier cities include Hangzhou, Tianjin, Chengdu, Nanjing, Dalian or Wuhan.1 Who are these consumer groups? What are their expectations? What is important to them? How large is the market? Regardless of the product category, the answer to these questions and many others will be paramount for both domestic and foreign brands in formulating their China strategies for the next decade. This article will discuss a market research project conducted by Labbrand’s consumer research team that aimed to further the understanding of 2nd tier markets in China for a specific client. Through this project, some “golden rules” of conducting research in less developed areas of China were realized. As you will see, research design and practices must be carefully adapted to the situation in 2nd and 3rd tier cities in China to effectively achieve research objectives. This past summer, Labbrand’s consumer market research team spent 4 weeks traveling throughout Zhejiang province making stops in places such as the more industrial areas of Yiwu and Shaoshan, the textile region of Tongxiang and the scenic area of Xinchang, asking questions, observing and gaining an understanding of the market dynamics of each region. The product and segment in question were concrete roof tiles for the new class of home owners emerging all across the Zhejiang countryside. This was a potentially very attractive market for the client, but with limited resources it was clear to them that qualitative market research of different regions was the first step to systematically increase their market knowledge and lay the foundation for developing a successful strategy to facilitate their entry into the 2nd tier regions of Zhejiang province and better grasp the needs, expectations and perceptions of their new target consumers. Prior to the fieldwork, the scope was clearly defined and the following information was identified as necessary to come out of the study: 1. A detailed description of how the government organizes the market 2. A profile overview of each area visited (market size estimates, attractiveness of each region) 3. Prioritization principle for business-to-consumer areas and lead generation. (key information that enables understanding of market dynamics and growth potential.) 4. Distributor profiles (distribution channel analysis, price levels, payment terms, product mix, alternative distributor profiles) 5. Detailed description of end-user (purchasing behavior, payment terms, needs, expectations, influencers) 6. Competitor profiles (product types, price levels) 7. Architects profiles and their level of market involvement. (i.e. whether or not architects would identify specific products to be used in construction, and whether their preferences would be followed.) 8. Contractors / Roofers profiles The data collection method was in-depth interviews. The organization of the interviews consisted of predefining persons of interest, developing detailed interview guidelines and then actually finding those individuals in the select locations. One aspect that became painfully clear during the fieldwork was that no matter how much the team planned in advance, carrying out successful in-depth interviews depended on two things; actively being in the field from 8am to 8pm (“pounding the pavement” so to speak) and having a local driver who knew his way around and could help make introductions. The team originally intended to record all of the interviews; however, it was not always easy to accomplish, especially during interviews with government officials. Although it is possible to take notes during an interview, once the research team is back in the office conducting analysis and writing the report it is often helpful to be able to have the interview content on hand to look over as needed. Also, many times the client will require a copy of the interviews for their records. The fieldwork research design consisted of two phases. The goal of the first phase was to go out and test the interview guidelines to see all the information the client wanted could be obtained within the predetermined timeframe. After reviewing the results from the first phase the team was able to roll-out the fieldwork with the confidence that research objectives would be met. From our experience, we can summarize a few golden rules for carrying qualitative research in the 2nd tier regions across China: 1. Preparation is key-know the product in question and be able to talk about it. 2. Be flexible and take advantage of opportunities which present themselves. 3. Be prepared to carry out an interview anywhere, get what you can and be thankful. 4. Don’t take everything at face value; be persistent. 5. Go the extra mile; once you leave you can’t go back. The results of the fieldwork enabled the team to clearly describe the differences and similarities of each region, profile current distributors, end-users, and contractors, to estimate market and segment sizes and to understand through which policies the local and provincial governments are active in this market. The key output for this project was the development of a roadmap for the client’s marketing and sales teams to assess the attractiveness of a specific market. This included outlining key sources for collecting information and the development of a multi- criteria decision making model which, based on specific variables, enables the client to evaluate the attractiveness of specific regions in comparison to one another. This tool can prioritize specific regions for their sales and marketing teams to review before they enter the area. In a final strategic modeling workshop, together with the client, Labbrand developed a market development action plan which combined their industry knowledge with our experiences from the fieldwork. This enabled them to clearly outline how a new segment can be identified, what type of promotion material is required, and which type of products can be sold. From start to finish the project took approximately nine weeks to complete. As is the case with any project which has an intense fieldwork phase, sufficient time is needed to allow for the team to recover. The analysis can only be as good as the data collected; rushing the fieldwork will negatively influence the quality of the final deliverables. China has a long history, a rich culture, a unique language, and various ethnic, geographic, and economic regional differences. As more foreign companies set their sights on the Chinese domestic market as a potential source of consumption revenue, they need to segment the market in ways that take into consideration the local contexts in which they plan to operate, as well as profitable business opportunities. With 1st tier cities such as Beijing and Shanghai becoming more and more saturated with foreign and domestic brands everyday, the 2nd tier cities and beyond emerge as the next frontier for market development. Companies that undergo comprehensive and relevant market research in these areas prior to launching new products and services will have a solid understanding on which to base their brand strategy, marketing and expansion decisions, thereby contributing to their long term success. 1 See RightSite. (2009, May 26). Defining China’s Second and Third Tier Cities. and The Boston Consulting Group (2009, September). China’s Luxury Market in a Post-Land-Rush Era.
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