For the business, MNCs usually categorize Chinese cities into:
Tier 1: four municipalities, 27 provincial capitals, and prosperous prefecture cities such as Shenzhen, Dalian and Ningbo
Tier 2: about 300 prefecture cities
Tier 3: the city associated districts and county-level cities (in total 1225).
In Shanghai the retail space per household ratio now exceeds that of France and other developed countries.
Often the market in Tier 1 cities is very competitive.
The costs for market penetration are much higher in Tier 1 cities.
MNCs have started looking to China's Tier 2 cities (120 of them have populations over one million) and to the county-level Tier 3 cities, where middle-class incomes are rising the same way they rose in Tier 1 cities in the last 10 years.
China's Tier 2 cities now represent about 88% of the country's GDP.
The attitude towards risk-taking is almost the same but slightly lower in Tier 2 and Tier 3.
Chinese people prefer to avoid debts (especially in Tier 2 and Tier 3).
Often Chinese people save money for housing, education and medical costs.
The importance to be up to date with fashion trends
Number of people that like to keep up to date with fashion is higher in 3rd tier cities.
Lower tier consumers have easy access to fashion (often is cheaper than in tier 1).
The consumer’s desire for new products
Chinese consumers are looking for new ideas in every field of consumption.
Not big differences across the tiers but the desire is slightly higher in tier 1.
Advertising is above all a source of knowledge.
Brand power is not strong, especially in the 2 and 3 tiers.People in 2 and 3 tier cities are less open to foreign brands
The price sensitivity is higher in 2 and 3 tier cities. Chinese market is still price-sensitive
Price influences both store and product choice.
Kids have significant influence on the family during shopping. But the proportion is lower in 2 and 3 tiers.
The market in 2 and 3 tiers is still not so competitive like in 1 tier cities. Consumers are looking for new products and differentiation in all the tiers.
Role of advertising is mostly informative: companies that want to build brand power must shift advertising/brand communications from providing information to creating emotional connections.
An international image is not always an advantage because that might create perceptions of higher price (especially for the lower tier consumers).
Children can play an important role in purchase decision, so it is necessary to consider their power.
