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China’s lower-tier households earn 88% more than three years ago

26 November, 2012


GroupM China’s ‘Project Deep Dive’ Maps out Tier-3/4 Consumption Behaviour 

SHANGHAI – The second release of GroupM China’s ‘Project Deep Dive’ study predicts that consumption levels and purchase intentions in lower-tier markets may exceed earlier expectations, especially when incomes have increased by 88% from three years ago.

Tier-three and tier-four households now pocket average monthly salaries of RMB5961, compared to RMB3172 in 2009. 70% of consumers also express satisfaction with their current standards of living. 68% are willing to pay higher prices for premium products of better quality.

Growth rate of monthly household income in lower-tiers greater than upper-tiers; shows consumption potential

Among lower-tier consumers between 15 to 45 years old, the increase in their average monthly household incomes (88%) is significantly higher than the 57% of those of the same age bracket in upper-tier markets, and also higher than China’s 41% growth in GDP in the same period of time.

Notably, lower-tier consumers aged 35 to 44 almost doubled their average monthly personal incomes (95% increase) over the past three years, while upper-tier consumers enjoyed a 64% hike in income.

In a breakdown by region, annual household income in Southwest China has reached RMB6499, representing an increase of 128% from three years ago and shortening the gap with income levels in the more developed Eastern China region (RMB6837).

Taking into account comparatively-cheaper real estate and consumer goods in the lower-tiers, their real purchase power is considerable. The immediate implication for brands is to fully understand how much potential lower-tier markets have, explore consumption opportunities and form their marketing strategies accordingly.

Increased incomes are changing consumption attitudes with more attention on brand value & product quality

64% of consumers in lower-tier markets are concerned about their brand choices affecting how other people judge them. To them, the guaranteed quality of branded goods is secondary. Brands are more important in helping the psychological need of ‘gaining face’ in society, with more than half (56%) feeling this way and preferring famous foreign brands instead of local ones.

Brands need to place themselves in the shoes of such consumers when initiating marketing mixes. Make sure that product design, store decoration, price points and communication channels are able to feed such a mindset.

In addition, 45% of consumers hope to differentiate themselves with clothes, handbags and shoes -- especially in the Northeast (54%) and North (56%) regions. Watches and jewelry are also recognized as status symbols for 44% on average.

85% of consumers from lower-tier markets purchase clothing items online, a significantly higher percentage than 75% for the upper-tier markets.

For marketers, emphasizing individualism and a sense of personality that the brand injects might get them more love from lower-tier consumers in the Northeast and North, and the e-commerce platform is an important demand to reach out to these consumers apart from physical stores.

Power shifts from the marketer to the consumer as receptivity to one-way brand messages gets lower

Even though 62% of lower-tier consumers indicate they are less confident about products that are not advertised (more than two-thirds say advertisements will sway their brand choices), more than half (51%) will search online for product information after being exposed to a TV ad. This means that fundamental change is occurring in the way consumers receive and react to a brand message. It is evolving from a passive acceptance of advertisements to a proactive gathering of extra information for the purpose of making purchase decisions.

A fifth of all lower-tier consumers regularly shop online. The size of this group has grown 72% compared to last year. Average purchase amounts also increased 52% from RMB1, 838 per shopper in 2011 to RMB2, 793 in 2012.

Marketers must change their usual advertising model - which is to cram a lot of product information in one single ad – to one with content that triggers interest. They must then further develop the consumer path by building a searchable, convenient and interactive online platform that offers product-related information, and then an eventual call-to-action to purchase.

“Contrary to what is popular perception, the disposable incomes of lower-tier consumers are not lower than those in upper-tiers. They have the money and time to pursue a better quality of life. Meanwhile, they are more confident about future macro-economic developments than upper-tier consumers. Brands have to realize this fast and have tailor-made products, services as well as communication platforms. All in all, lots of business opportunities in the lower-tier markets are waiting to be uncovered,” says Eve Lo, Chief Knowledge Officer, GroupM China.

About GroupM China
GroupM is WPP’s consolidated media investment management operation, serving as the parent company to agencies including Maxus, MEC, MediaCom, Mindshare and Xaxis.
GroupM is the global leading media investment management group.

GroupM employs more than 1800 people in eight cities across China. With total media billings in excess of USD 5.11 billion (RECMA: 2011 Definitive), GroupM is China’s number one media communications group and the industry’s biggest investor in syndicated and proprietary media research and optimization tool development.

About GroupM Knowledge
GroupM Knowledge is GroupM’s think tank and knowledge management arm in China. This unit is responsible for industry-wide thought leadership research to benefit our agencies and client brands, exploring issues affecting the media industry in China, working with syndicated research suppliers and managing the Group’s proprietary tools, research and systems. GroupM Knowledge also manages a media consultancy, advising clients with specific media research challenges. The unit aims to be the knowledge platform, linking brands with relevant consumer and communication insights.

About ‘Project Deep Dive’
‘Project Deep Dive’ is GroupM's proprietary research study aimed at tracking the latest consumption trends in lower-tier markets. It combines both qualitative and quantitative research covering a total sample size of 10,000 consumers from 28 provinces, 69 prefecture-level cities, 148 county-level cities, and 408 counties in China, making this research one of the largest in sample size and market coverage.

The projected audience numbers to 620 million lower-tier consumers, equivalent to 46% of the entire Chinese population.

First-hand data and in-depth insights of the media habits, consumption behaviour, brand preferences and values of lower-tier consumers have been gained from four successive waves of this study in 2007, 2009, 2011 and 2012.
Qualitative elements were added in the 2012 wave, using anthropological methods that include in-depth interviews, accompanied visits and focus-group discussions for 312 consumers in eight provinces.

Media Contact:
Diana Wang  
+86 21 2307 7703

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