Which is the largest market in China for Humvees?

2. Which is the largest market in China for Humvees?

4. Which city did The Guardian refer to as ‘Invisible City’?

6. What is the most common (and free!) advertising medium in small towns?

7. Ad for a Stampmaker – fake it! Ad for Locksmith

8. The Real China Revealed Insights into the mainland’s 2nd and 3rd Tier cities

9. Where is the money currently? 44.5% population 32% of GDP 4.5% population 4% of GDP 51% population 64% of GDP Source: Asian Demographics

10. Only 33.5% of all retail sales in China now come from the 24 largest cities.National Bureau of Statistics / Access Asia

11. 7 Relative affluence of inhabitants in the main 8 cities will decline • Compounded annual growth rate of affluent households is 17.9% • Number of affluent households in the 8 cities will more than double but contribution will be down to 33% by 2012 • Note: currently middle class are those with Rmb 28-48K - here forecast of those earning Rmb 80K+; even with some inflation, they should enjoy good standards of living by 2012 Secondary cities in the provinces of Jiangsu, Zhejiang, Shandong and Fujian. Chongqing, Chengdu, Kumming, Qingdao, Tianjin, Shijiazhuang and Xiamen Beijing, Guangzhou, Hangzhou, Nanjing, Ningbo, Shanghai and Shenzhen Source: Asian Demographics

12. Defining the Tiers First-Tier Cities Four municipalities: Beijing, Chongqing, Shanghai, Tianjin Cities with total retail sales of more than RMB30bn, annual per capita income of RMB11,000 and high per capita retail sales as proportion of income: 10 provincial capitals: Changchun (Jilin), Chengdu (Sichuan), Guangzhou (Guangdong), Hangzhou (Zhejiang), Harbin (Heilongjiang), Jinan (Shandong) Nanjing, (Jiangsu), Shenyang (Liaoning), Wuhan (Hubei), Xi’an (Shaanxi) Four leading cities: Dalian, Qingdao, Shenzhen, Xiamen Second-Tier Cities 17 provincial capitals: Changsha (Hunan), Fuzhou (Fujian), Guiyang (Guizhou), Haikou (Hainan), Hefei (Anhui), Hohhot (Inner Mongolia), Kunming (Yunnan), Lanzhou (Gansu), Lhasa (Tibet), Nanchang (Jiangxi), Nanning (Guangxi), Shijiazhuang (Hebei), Taiyuan (Shanxi), Urumqi (Xinjiang), Xining (Qinghai), Yinchuan (Ningxia), Zhengzhou (Henan) 50 prefecture-level cities, including, Ningbo, Suzhou, Wuxi, Wenzhou, Nantong, Dongguan, Zhanjiang 15 more cities with populations of between 500,000 and 2mn Third-Tier Cities Approximately 200 county-level cities Fourth-Tier Cities Approximately 400 capitals of county towns

13. Seeking insights into the other half

14. Research Objectives • Understand the consumer in low tier markets and how they are different from (or similar to) top tier cities – in terms of attitudes towards life, brand consumption & media habits. • The retail communication study - brand and communication presence at different types of retail stores. • Shopper profile and shopping basket - observations of shopping behavior, including shopper profile and the products & brands in their shopping basket; planned vs impulse buying

15. Study sample • Home interviews & photographs – 3419 families • Retail environment – 295 hypermarts, supermarkets, convenience stores, mom-n-pop stores • Shopper exit interviews – 530 • Qualitative in-depth family & expert interviews – 20

16. Mudanjiang Hailin West Beijing Lanzhou Shijiazhuang Zhangjiakou Taiyuan Jinan Linxia Tai’an Linfen Xianyang Xi’an Xinyi Shanghai Yichang Wuhan South Tier 1 Tier 2 Tier 3 Maoming Nanning Xinyi Cenxi Market Coverage 22 cities in 10 provinces, across tier 1 to tier 3 North

17. 44.5% population 32% of GDP 4.5% population 4% of GDP 51% population 64% of GDP Source: Asian Demographics

18. Topline findings and implications

19. Consumer Lifestyle - attitudes to family • Tier 1 residents feel almost guilty of giving their careers preference over family, hence justifying priorities to themselves. • Many Tier 2-3 families eat together anyway.

20. Consumer Lifestyle - attitudes to life • Consumers living in tier 1 cities are more satisfied than those in the Tier 2-3. • Over half of those living in Tier 2-3 are not satisfied. • “A big city has many more opportunities for earning and spending” – Nanning respondent

21. Consumer attitudes - risk • The majority plays safe, yet there is a substantial number of those willing to take risks – in equal measure across the tiers • Nude portfolios in Nanjing • “My daughter has left high school and is learning how to dance” – Mr Wang, Lanzhou

22. Consumer attitudes - risk • The majority remains debt-averse; China continues to be a high savings nation. • Change marginally greater in Tier 1 cities • “I am confident that I will get a raise this year and will pay off my credit card bills” – Jr. Executive in Shanghai.

23. Consumer attitudes - ambition • Tier 1 residents are only slightly more ambitious than the lower tiers; the majority still does not consider itself very ambitious. • “I want to be like Yo Yo Ma”

24. Consumer attitudes - fashion • Again, small differences between the tiers. Lower tier consumers have huge access to fashion & beauty, even if it is not always branded. It’s also cheap. • “Why should I spend 200 kuai on a pair of branded jeans when I can pick up 5 stylish pairs here?” – Young woman, Cenxi

25. Consumer attitudes - novelty • Novelty is a big draw. Consumers are looking for new ideas in every sphere of consumption. Again, across the tiers, and to a slightly greater extent in Tier 1.

26. Implications - 1 • The brand stories, particularly those around the themes of risk, fashion, family, ambition can be the same across the tiers. • However they need to be calibrated. • Risk-aversion can be countered with confidence. • Brands and communication will need to offer the new even in the lower tiers – tired clichés and similar products will not work. • Brands and communication for low tier consumers can actually make them feel good about their condition, rather than inadequate.

27. Attitudes towards brands & advertising • Clear role for advertising – it is the source of knowledge about brands • Fair numbers find value in brands; greater numbers in Tier 1 cities

28. Attitudes towards the foreign • Openness to foreign brands significantly less in lower tier towns. • Greater price sensitivity …belief that foreign brands are more expensive.

29. Brand Preference - Top 10 Favorite Brands

30. Influences on purchase decision • Still a price-driven, price-sensitive market • Price influences both store and brand choice

31. Influences on purchase decision Average

32. Influences on purchase decision • Price and brand are most important, across the tiers • In Tier 1, people value their own experience; in Tier 2, others’ opinions matter; in Tier 3, packaging and salesperson’s / shopowner’s recommendation matters more. • Reflects how and where they mostly shop

33. Shop vs Brand - relative importance Do you first decide which shop to buy or which brand to buy?

34. Shop vs Brand - relative importance General speaking, the more expensive the product, the more important the brand!

35. Influence of the Little Emperors • Kids have significant influence on the family during shopping as sources of new information, but the proportion is lower as one moves down the tiers. • They are among the first to latch on to new trends.

36. Influence of the Little Emperors • “We spend 40% of our income on our son, to make sure he has a good education and is comfortable” – couple in Linxia, MHI: Rmb 1100 • “Bu jidao” – their son, upon being asked who the cartoon character on his T-Shirt was (it was Mickey Mouse)

38. Implications - 2 • Role of advertising / brand communication experienced by consumers is mostly informative. • Opportunity to use emotion, creating value systems and move to imagery and storytelling. • MNC brands need not emphasize country of origin. For the low tier, cultural assimilation would be a good strategy.

39. Implications - 2 • Tier 2 & 3 show a lower degree of shopping confidence and individuality than Tier 1 shoppers • Role of word of mouth much greater; need to motivate shopowners / shop assistants as well as current users • Need for constant reassurance • Opportunity to involve kids to spur brand choice and aid shopping, even in the low tier

40. Some other differences between the tiers …

41. Food habits • Tier 1 has significantly more consumers eating at fast food restaurants (such as KFC, Yoshinoya, McDonalds …) than Tier 3; Tier 3 families remain conservative with their eating habits.

42. Planned purchase – consumer durables Which ones do you plan to buy a new one next 12 month?

43. Planned purchase – consumer durables • More consumers in tier 1 intend to buy new TV in next 12 months. • Replacement market - upgrades • More consumers in tier 2 plan to buy new DVD player, air conditioner and washing machine. • More consumers in tier 3 are willing to buy new mobile phone, computer, digital camera and refrigerator. • Both first-time purchases – consumers entering category for the first time.

44. Shopping Frequency & Distance Shopping Frequency Shopping Distance Sample:250245135 Sample:250245135

45. Shopping Frequency & Distance • Shoppers in tier 1&2 markets go shopping a little more frequently than those in tier 3 markets. • And there are more shops near residence zone in tier 1&2 markets than in tier 3 markets

46. Impulse Shopping • Interestingly, shoppers in Tier 2&3 markets do a bit more impulse shopping than those in Tier 1.

47. Impulse Shopping: Influences

48. Impulse Shopping: Influences • Discounts are the most effective promotion that trigger impulse shopping. • Free gifts and sampling are more attractive in tier 1 markets. • Radio ads and standalone display are attractive in tier 3 markets.

49. Shopping environment

50. TV: Program Type Preference Average