Fig. 1: Typical store facades in Chongyang city near Qingdao (3rd-tier level). Do you recognize the person on the billboard to the left? At the far right the entrance to a wholesale market

Misconceptions

One of the biggest misconceptions about China is to see it as a homogeneous market. Shanghai and Beijing are by no means representative for the rest of China. This section examines the diversity among Chinese consumers. It turns out that China is a highly segmented market, not only demographically but also with respect to regions and city tiers. Since information from consumer market research in China is expensive, the data presented in this chapter has been collected from a variety of freely available sources that appeared trustworthy and reliable to provide clues how the behavior of Chinese consumers differs from their Western counterparts.

Regional differences

This survey analyses geographic (regional) differences of major Chinese consumer behavior/attitudes
Geographic (regional) differences in Chinese consumer behavior
Result: There are significant regional differences in the buying behavior of Chinese consumers.
Conclusion: Localization is key in China.

Demographic differences

This survey analyses demographic (by city tier) differences of Chinese key buying factors.
Demographic (city tier) differences in Chinese buying behavior
Result: Significant differences in the buying behavior of Chinese consumers exist in different city tiers.
Conclusion: Localization is key in China.

Conclusion

• China is not a homogenous market but highly segmented
• Localization is key
• Your store format should correspond with the city tier (economic environment)

Key buying factors

In a report of McKinsey ("Preparing for China's urban billion") the variation of key buying factors of consumers in China were analyzed with respect to REGION and CITY TIER.
While "region" is a geographic core segmentation parameter, city tiers are usually used to differentiate by economical environment and income.
Results Buying factors:

Of the 8 most important factors that have an impact on a consumers buying decision, the following 6 differ mainly by region:

• Influenced by others (parents and celebrities)
• Influenced by in-store salesperson
• Preference for domestic (Chinese) brands
• Influenced by TV advertising
• Concern about food/beverage safety
• Brand-driven in food, beverage and personal care

Of the 8 most important factors that have an impact on a consumers buying decision, the following 2 differ mainly by city tier:

• Preference for modern channel
• Preference for well-known brands and willingness to pay for premium brands

Attitudes and behavior

In the same report the variation of buying behavior and the major buying attitudes of consumers in China were analyzed with respect to REGION and CITY TIER.
Results Attitudes & Behaviors:

Of the 6 most important buying attitudes and behavior, the following 3 differ mainly by region:

• Early adoption of new products
• Pride in and personal impact from the Olympics
• Child-centric

Of the 6 most important buying attitudes and behavior, the following 3 differ mainly by city tier:

• Frequency of Internet access

• Environmental consciousness

• Materialism

Conclusion

Key buying factors that are closely related to income are driven by the city-tier, such as e.g. preference for and willingness to pay more for premium brands as well as preference for modern channels.
Therefore modern store formats (hypermarkets, 24-hour convenience stores) shall mainly be found in tier-1 and tier-2 cities, while more traditional store formats (e.g. the wet markets) are pre-dominantly found in city-tiers of 3 and below (which does not exclude the option of finding wet markets in tier-1 and tier-2 cities, however their density will be less and their quality and price much higher).