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Why is betting on lower tiers cities a winning strategy for cosmetics in China

Lancome-bus The Chinese cosmetics market is now the world’s third-largest cosmetics market, worth $26 billion a year and a fierce battlefield. Foreign brands are leading the competition in China’s cosmetics market, which is controlled by foreign brands at more than 80%. But what is often forgotten about the Chinese cosmetics market is that 70% of the Chinese are still living in lower tier cities in rural areas.  According to Nielsen, a research and consulting firm, the market share for high-end beauty products in the lower-tier cities is 10%, compared to only 16% in first-tier cities. Nielsen’s data also showed that customers in lower-tier cities spent 21% of their beauty budgets on foreign brands, while the percentage of this budget is only 45% for customers in higher-tier cities. The research company also said that in the coming years there will be faster growth for the high-end cosmetics market in lower-tier cities than in the first- and second-tier cities.

Here are two examples of strategies based on lower-tier cities:

Proya, the Chinese brand

In 11 years of existence in China’s cosmetics market, this domestic company has become one of the leaders in the country. Their annual turnover was of 4 billion yuans in 2012, generated by the sales of more than 600 beauty counters in malls situated in over 500 Chinese cities.PROYAThe company although focused only on the lower tier cities to build its success. This was a new business model at the time, where no company would risk itself to bet on the customers of the Chinese rural cities. At first, the company chose to establish her own stores to sell its products, before selling in malls under kioks and finally selling via several sub brands and e-commerce sites.proya pdtsThanks to this positioning and to selling affordable products, the brand’s sales volume increased by more than 30% annually. The brand experienced such a huge success by selling in low-tier cities that the CEO, Fang Yuyou now wants to take it to the global market.

Lancôme, the French brand

Very few foreign brands understood the possibilities that offered a positioning in the lower-tier cities in China. But a little while after setting up stores in China, Lancôme also quickly started to expand in lower-tier cities. The company opened a store in Hangzhou in 1997, which is now one of the most successful of the brand worldwide. Lancôme never stopped expanding to Chinese rural areas after that. In 2013 the French brand even opened stores in four-tier cities such as: Jiaxing, Shangyu, Zhuji in Zhejiang province and Weifang in Shandong province.stand lancome shanghaiThanks to its innovative positioning for a foreign brand, Lancôme is seen as a pioneer in the high-end cosmetics by its Chinese customers. The brand also developed promotion campaigns especially designed to help rural areas to discover its products, such as the Lancôme Bus:Lancome-bus 

Online Sales

Lower-tier cities customers are very active online to buy products they can’t find in their local stores. This explains why Alipay, the payment tool of Alibaba, the Chinese leader of e-commerce, recorded more online transactions coming from low tier cities. There were indeed 27% of transactions made in fourth-tier cities and 21% in third-tier cities. These sales were driven mostly by young people. They are indeed very tech-savvy and paying a lot of attention on brand’s online campaigns to increase their brand awareness.online shoppeuse Whether the brands were local or foreign, betting on lower-tier cities to expand helped them winning customers very quickly. The customers situated in rural areas are indeed underserved when it comes to the cosmetics offer compared to higher-tier cities.To go further:China DailyOur agency to help you understand the Chinese cosmetics marketHow Lancôme seduced Chinese women

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