Unlocking China’s forgotten cities
Posted on 27th April 2016
by JOHN PERELLA, Managing Partner, Data2Decisions APAC for Digital Market Asia
Chinese CPG brand we’ve worked with has historically generated about half of its revenues from cities that only contain about 20 per cent of the population. Roughly speaking, that’s Tier 1 and 2 cities. However the remaining population accounts for over one billion consumers. The reason they’re not buying is not that they’re not interested – it’s simply that they have not been able to reliably access mass brands and services. For businesses, this didn’t necessarily matter so much when the market was booming and there was double-digit growth. However as the retail environment moves towards saturation in major metropolitan areas, combined with a global slow-down, new revenue streams need to be sought to keep shareholders satisfied.
Fortunately, with the rapid expansion of online retail capabilities catering to Tier 4 and 5 cities, almost everybody can now gain access to mass brands. Alibaba now delivers to 90 per cent of China. Over 80 per cent of these smaller-city consumers now have access to the internet – that’s over half a billion adult consumers with both access and the resources to buy relatively expensive products and services. With this access they will naturally increase their interest in brands.
The opportunity is suddenly there for brands to generate significant revenues from these localised and largely untapped markets without needing to invest heavily in logistics infrastructure. It’s therefore essential for national businesses to establish themselves as local players.And to do that, marketers need to establish their brands effectively in the minds of these consumers quickly.However the costs to do so are vast. About 40 per cent of advertising budgets are currently spent at a local or regional basis, covering only Tier 1 to 3 cities.
Expanding to Tier 4 and 5 cities requires a significant scaling in budgets and while the markets are immature, it’s essential that marketers minimise wastage and maximise the effectiveness of each RMB.
However, measuring and driving advertising effectiveness across China is highly complex. Media is planned nationally, regionally and at city level across multiple channels. To optimise media budgets effectively we have had to significantly scale up the traditional analytical methodologies that might work in more contained markets. While this is still possible in the bricks and mortar world of Tier 1 to 3 cities, as we see revenues from lower-tier cities tipping the balance, it will fast become implausible to manage them in the same way.
Fortunately, the solution presents itself naturally. Because the best way for marketers to reach these consumers (beyond the traditional national TV & Print) is going to be via digital – to use the existing digital distribution channels to both communicate to consumers and then to sell to them. And this presents marketers with an incredible, scaled opportunity never seen before and unlikely ever to be repeated. We could witness the explosion of a majority digital world where consumers’ primary route to purchase will be via the web. And the greatest opportunity from a marketing effectiveness perspective is in analytics and the ability to track marketing from delivery to sale at an individual consumer level.
Analytical techniques such as digital attribution are able to analyse millions upon millions of online consumer journeys and find out exactly what makes people buy. How many ads to serve? What type of ads? Where? In what order? Over what time period? By understanding these crucial elements of a roll-out to over half a billion consumers, marketers will be able to fine-tune their marketing budgets to maximise business growth at a speed which suits them. They’ll be able to track from adserve to purchase the effectiveness of their investments which will be key to securing future budgets. And they’ll then be able to optimise their investments to maximise returns.
Finally, I believe that getting in early is key – not just because being first to market usually carries clear advantages. By getting a head start brands will be able to understand quickly what drives these consumers and shape the environment itself to ensure they unlock the potential of these cities.