In brief

In brief

  • Over 70% of China’s population lives in third-tier and lower-tier cities.
  • The potential consumption growth in the smaller cities and rural areas is extraordinary.
  • This report analyzes four key trends that businesses should consider when striving to grow their lower-tier city market share.
  • The ability of companies to succeed in lower-tier cities will be a testament to their abilities to achieve high performance and sustainable growth.


Accenture Chinese Consumer Insights 2022

”Neo-rational“ consumers in lower-tier cities

Consumers in lower-tier cities also show neo-rational characteristics, but express them in a slightly different way. Like their counterparts in higher-tier cities, lower-tier city consumers prefer to comparison shop. But unlike their high-tier city peers, lower-tier city consumers are reluctant to live paycheck to paycheck. They are pragmatists when it comes to their consumption behaviors.

We also detected significant inter-generational differences in consumption behavior in lower-tier cities. There, the age of 30 marks a tipping point in consumers’ behavioral characteristics.

70%

Seven out of ten survey respondents in lower-tier cities reported that their daily household expenditures account for more than 50% of their income.

90%

More than 90% of respondents in lower-tier cities disagreed with a paycheck-to-paycheck consumption mode—a higher proportion of consumers than in first- and second-tier cities.

50%

Only 50% of the respondents in lower-tier cities are willing to pay a premium for products exuding an upper-class vibe.

78%

78% of respondents in lower-tier cities consider a product’s design and appearance when making a purchase. For them, appearance supersedes price as a product’s most attractive feature.

70%

More than 70% of the respondents in lower-tier cities seek to experience and compare various products before making their final purchase decisions.

Four major trends in lower-tier cities

Online appeal

Consumers in lower-tier cities rely more on online channels. Social media and live-stream platforms are now key components of their consumption journeys.

The service potential

Product-related services before, during and after a sale have become increasingly important factors in the purchasing decisions of consumers in lower-tier cities.

Domestic brands shine

There is a tremendous opportunity for domestic brands that are able to give consumers in lower-tier cities what they want—namely, value for money and trendy designs.

Membership marketing has its rewards

Consumers in lower-tier cities value the practical benefits of offline membership programs and are easily motivated by small incentives.

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How can businesses win in lower-tier cities?

Continual Product and Service Innovation

Lower-tier cities do not represent a market for replicas of products that sell in first- and second-tier cities. They exhibit their own unique consumption preferences and behaviors. A business, therefore, needs to develop an in-depth understanding of lower-tier city consumers and never stop innovating its products. At the same time, it should improve local services and optimize consumer experiences. That’s how it will increase brand loyalty and win in the competition for the minds (and wallets) of consumers in lower-tier cities.

Differentiated Consumer Experiences

E-commerce platforms and social media are growing more and more influential in lower-tier cities. As emerging online channels, such as livestreaming, gain traction, businesses should set up online distribution channels and remodel consumer interactions to engage the ever-expanding online customer base. Also, since consumers in lower-tier markets enjoy the benefits and convenience of membership programs, businesses should design and build an appealing member marketing system to retain customers and stimulate their consumption.

Accelerated Digital Transformation

Lower-tier cities cover a vast territory and exhibit large geographical differences. Succeeding in this environment (while keeping operating costs in check) depends on having a highly efficient and digitally enabled supply chain. But the need for digital transformation isn’t limited to the supply chain. New digital capabilities are needed in many areas to help companies keep pace with the ever-changing needs of consumers—and outpace the steady stream of emerging competitors. Only by building their digital capabilities can businesses lay the data foundation that is necessary for ongoing product quality and customer service improvements. Only by transforming digitally can businesses take the lead in lower-tier cities.

Xun Zhang

Managing Director – Strategy & Consulting, Accenture Greater China


Right Chen Wang

Director – Strategy & Consulting, Accenture Greater China

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