In recent years, Western marketers – and many Chinese brands – have focused their marketing efforts heavily on China’s so-called higher-tier cities. But the focus is now changing and lower-tier cities are now important for Chinese marketing activity. In this blog, we’ll cover what you need to know.

What is the Chinese city tier system?

China has around 600 cities that are split into different tiers. These tiers were primarily driven by the financial sector to offer guidance to overseas investors by explaining a city’s financial and economic performance (measured via GDP), its infrastructure and location convenience for trade and city.

For example, China’s coastal megacities are home to international airports, vast trading ports and global businesses. These tier 1 cities also have populations of 15 million people or more. Tier 2 cities have between 3-15 million citizens and tier 3 cities have 150,000 to 3 million citizens. In total, the government recognises a categorisation system of nearly 20 tiers.

It’s important to know that the Chinese tier system is constantly updating to reflect changing needs and methods of measurement. Different industries may have their own classification systems too. For example, real estate markets sometimes refer to tier 1.5 cities. Others rank cities by broader factors that include citizen vitality, flexibility for the future and lifestyle diversity. More recently, some assessments have considered ranking factors such as the number of Starbucks in a particular city, to assess the penetration of Western brands.

How does the Chinese tier system help marketers?

China is a vast, fragmented and complex market filled with regional variations that impact marketing strategies. The tier system can help marketers to begin their market segmentation as part of their targeting strategies. It is an intuitive and usable way for marketers to get a high-level view of China’s myriad markets, as a preliminary means of secondary market research, before commissioning more detailed primary market research.

Why lower-tier cities matter

Increasingly, lower-tier cities are important because of their first growth and potential. Until now, any brands have focused their attention and budgets on tier 1 megacities and tier 2 cities, both of which are vast, economically-successful, mature markets. Bear in mind, for example, that the population of Shanghai is equivalent to the population of Australia, and its GDP of US$469 billion is equal to the GDP of the Philippines.

But lower-tier cities offer all of the advantages of a fast-growth, less mature market. Brands have an opportunity to build their presence in a market without stiff incumbent competition, within markets filled with young people whose incomes are growing – and whose desire for Western, luxury and high-quality goods is high. Consumers in lower-tier cities are rapidly accessing the same technologies, opportunities, earning power and sophistication as Chinese consumers in higher-tier cities, and they are keen to discover Western brands that resonate with their values, wants and desires. Those lower-tier and emerging cities may have been largely overlooked until now, but in the coming years, they will contain increasingly large proportions of affluent middle-class customers. In fact, Morgan Stanley has estimated that lower-tier cities are expected to have a collective consumer spending power of US$6.9 trillion by 2030!

How the tier system influences marketing

Western marketers will need to adjust their marketing strategies for the city tiers that they operate in. For example, a luxury beauty brand will already have a sophisticated, informed and highly-connected audience in a Tier 1 city, where consumers are already switched on to buying cutting-edge international brands. But in a lower-tier city, that brand might need to make greater efforts to inform consumers about its products, with explainers, tutorials and positioning.

A case study: Tuborg beers

Danish brewing firm, Tuborg, originally entered Tier 1 cities, following the market strategy of its parent firm, Carlsberg. However, these tier 1 markets were already saturated with competitors and the brand struggled to gain a foothold. Instead, it pivoted and relaunched its products in Tier 2 and 3 cities. This allowed it to become an early player in less competitive markets. In these cities, Tuborg partnered with cultural, music, arts and entertainment festivals, galas, showcases and events to build awareness and engagement, and to become synonymous with growing youth and consumer culture. This proved to be a successful strategy.

Why primary research still matters

It’s important to note however that the tier system should only be used as initial guidance for market positioning and targeting. China really is a hugely complex and varied country and local cultures are unique. For example, for food, drink and hospitality brands, marketers will find that taste preferences vary between cities, even where they fall within the same tier. It’s also vital to assess factors such as socioeconomic trends, cultural preferences, international trend exposure, geography and other factors before considering your marketing strategy.

How Western brands can find success in lower-tier Chinese cities

The first step is to recognise that China’s vast market includes huge numbers of lower-tier cities; all of which represent a lesser tapped potential for your brand to gain a foothold and grow. You may decide, through research, that tier 4 cities represent a fantastic opportunity for growth over time, recognising the increasing affluence and sophistication of local target markets. It’s vital to carry out additional research as part of your marketing strategy, to use the tier system as a quick indicator and then to drill down to your ideal markets based on your brand, product or service. A Chinese marketing agency such as Market Me China can assist you with this research, and then the development of your ongoing marketing strategy.

For example, your choice of lower-tier city will influence the social media platforms and influencers that you choose (depending on what your target audience in that particular city is using), it will influence your e-commerce strategy (including factors such as logistics and fulfilment), and affect your Chinese SEO, online advertising like Baidu PPC, content strategy, digital presence and so forth.

By investing adequately in your insight and research, you can position your Western brand perfectly to enjoy success in China’s exciting, fast-growth lower-tier cities, and gain that vital early advantage that allows you to grow with your market and enjoy a profitable future in this fascinating, fast-growth and lucrative market.

Find out more

Keen to find out more? Market Me China works with Western brands across all industries to help them achieve marketing success in China. Contact our friendly and professional team of digital marketing experts and native Chinese speakers today, for a no-obligation chat about your needs.