Richer lower-tier consumers want to spend on high-visibility products: GroupM

The study predicts that consumption levels and purchase intentions in tier-three and tier-four markets may exceed earlier expectations, especially when incomes have increased by 88 per cent from three years ago. Lower-tier households now pocket average monthly salaries of RMB5961, compared to RMB3172 in 2009.

This 88 per cent increase is significantly higher than the 57 per cent of consumers of the same 15- to 45-year-old age bracket in upper-tier markets, and also higher than China’s 41 per cent GDP growth in the same three-year period of time.

“Contrary to what is popular perception, the disposable incomes of lower-tier consumers are not lower than those in upper tiers," said Eve Lo, chief knowledge officer, GroupM China. "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”.

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

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, Lo said.

Earning more money does not mean they will buy indiscriminately. More attention is placed nowadays on brand value and product quality: 64 per cent of consumers in lower-tier markets are concerned about how their brand choices affect external judgments of themselves.

Brands are important in helping the psychological need of ‘gaining face’ in society, with more than half (56 per cent) feeling this way and preferring famous foreign brands instead of local ones.

More than two-thirds (68 per cent) are willing to pay higher prices for premium products of better quality. "We even have to thank pirated 'shanzai' brands for paving the way so consumers experience, by trial and error, comparatively poorer quality and therefore are now accepting of more expensive 'real' brands because of their better quality," Lo explained.

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

In addition, 45 per cent of consumers hope to differentiate themselves with clothes, handbags and shoes—especially in the Northern (56 per cent) region. Cars, watches, leatherwear and jewellery are considered the most visible outward representations of success.

The study highlights that the average amount spent on car purchases among lower-tier buyers in the Southwest region of China is RMB144,000—higher than the median of RMB129,000 despite their lower salaries. These consumers are more likely to regard private cars as a status symbol proving their success in life rather than just a utilitarian means of transport. 

More than a fifth of all lower-tier households own a vehicle (22.8 per cent) now, a group that grew 10 percentage points from last year. Consumers have been aware of more and more brands through the influx of information—an average of 14.9 car brands compared to 4.2 dairy brands.

"When I am in a business deal, if I am driving a Porsche I'm definitely going to have more luck than someone who turns up driving a Xiali. A car is a symbol of power," said a respondent named Guan from Inner Mongolia.

Driven by the quest for visible material goods, average refurbishment expenditure in the lower tiers is RMB31,000, with more than half (51 per cent) of their budgets spent on specialty kitchen appliances or bathroom fittings like refrigerators and water heaters that "can be seen" instead of hidden housing improvements like water piping and electrical wiring.

This proportion is higher than the 44 per cent in upper-tier markets, indicating that lower-tier consumers want products that are rooted in status projection and can generate positive social acknowledgment from neighbours and visitors.

For marketers, emphasising success and individualism as much as possible in product design and brand communications will get them more love. “To sustain brand success, brands must recognise how Chinese cultural realities affect their consumption habits, and ensure their marketing strategies are befitting of those cultural values," added Lo.