Dale Preston, Senior Vice President, Analytics & Consulting, Nielsen Greater China
China crossed over from a majority rural to a majority urban country when the urban population increased by 21 million last year. The urban population of 691 million residents now officially represents 51 percent of the total population. But marketers striving to reach only urban consumers are missing out on a 650 million rural consumer opportunity and a market worth almost $500 billion*.
Dale Preston, Senior Vice President, Analytics & Consulting, Nielsen Greater China, discussed that while urbanization is important to the development of consumption in China, attention to the buying behavior of migrant and rural residents is critical. Speaking at Nielsen’s Greater China Consumer 360 Conference in Beijing, Preston said that companies can no longer ignore the rural migrant segment of the market where consumers are often experiencing brands and products for the first time and thus, are forming brand connections that may last a lifetime.
Migrant workers fueling urbanization
The influx of migrant workers in urban areas carries considerable implications. By 2020, 32 percent of China’s 900 million urban residents are likely to be migrants. Today, around 20 out of every 100 villagers are migrants; almost half (45%) are blue collar workers, one-third (35%) are students and one-fifth (21%) are semi-skilled blue collar workers.
It is important to note that there are key differences between urban and migrant consumers. According to the World Bank, migrant workers send home around $45 billion a year. Some send as much as four-fifths of their incomes to their families. Because of the amount migrant workers send home, they are not likely to spend as much in urban centers (i.e., they don’t behave like the average urban consumer). Also, families in rural villages have more money to spend on better homes, children’s education, consumer durables and more premium groceries.
Tomorrow’s migrants will not need to travel far to find good jobs as urbanization is helping to drive the development of China’s lower city tiers and interior regions.
Less than 5 percent sales impact
The effects of these transitional consumers will impact the big city tiers, but the size of the impact will be much smaller than expected. A continued and keen focus on rural villages is vitally important for sustainable growth strategies. With increased government investment in rural areas and policy changes favoring rural and low-income workers, there is a rising income base among these residents. Marketers that understand the changing purchase dynamics of both urban and rural consumers will be poised for success.
Shop more, but spend less
Nielsen finds that the rural shopper makes twenty percent less shopping trips than urban residents, but spends one-third more on each trip, totaling an average monthly spend of 418RMB, which is 1,199RMB less than urban consumers and highlights the growth opportunities with these rural consumers. Rural shoppers living in lower-tier cities typically have larger families and lower incomes than higher city tier residents, and shopping is considered a social event where interpersonal relationships are valued.
Rural shoppers are less likely than urban consumers to switch stores, but they follow urban purchasing trends closely. Willing to travel to shop in modern trade outlets in higher city tiers about once a month, rural shoppers are exposed to an assortment of options not found in the villages. As these lower-income consumers move up the value chain, marketers need to pay close attention to purchasing patterns and align product availability in the villages. Product assortment and good quality are important purchase drivers for the rural consumer—even more so than price and promotions.
In the past, companies have focused on low price and often low quality offerings to penetrate villages. With village consumers becoming more affluent and aspiring to a higher quality of life, they seek products with key features and benefits similar to the ones they see in urban centers. Understanding what theses “must have” product attributes are and then offering tailored products at a lower price point to meet these needs will be the key to success.
While no categories are expected to grow excessively, urbanization will impact categories differently. With greater exposure to products not available in village stores and with rural consumers moving towards the same behavior as urban consumers, expect shower gels, body moisturizers, liquid laundry detergents, jasmine teas, men’s skincare and juices to see the greatest growth.
Evolving lifestyles and values
Lower tier consumers are experiencing the pushes and pulls of a society in transition. As a means to improve their lifestyle, they have a higher aspiration to achieve financial success than higher tier consumers, but they are not ready to compromise a healthy work-life balance. Family and respect are important and seeking social approval is a driving force. To reach lower tier consumers, brand communication must incorporate social themes.
A great store environment is a real differentiator for retail competition. Marketers have an opportunity to appeal to shoppers from a bigger trade area. Offer a shopping experience that makes an emotional connection with shoppers and meets their need to be “entertained”. While managing price is critical, product assortment and value need to be in lock-step with consumers desires.
*National Statistics Bureau, China & Nielsen Forecast