Similar buying power for wealthy Chinese in third and fourth tier cities, yet different habits

Having followed domestic Chinese brands first into second-tier provincial capitals over the past several years, many international brands are looking more seriously at expansion into third- and fourth-tier Chinese cities. Often considered luxury “blank slates,” third-tier cities in particular have come into focus as their small proportion of wealthy shoppers has shown strong demand for high-end items — becoming regular sights in second-tier “magnet” cities like Shenyang or Harbin, where they’ve developed a reputation as shelf-clearers.

Generally, top-tier cities include Beijing, Shanghai, Guangzhou and Shenzhen, while second-tier cities include provincial capitals. (For more on tier-two China.  From there, separating third- and fourth-tier cities is fairly inexact, but as AdAge noted this summer, agencies and marketers generally go by average income and a city’s development. As such, third-tier cities are the largest or wealthiest non-capital cities within a given province, while fourth-tier cities tend to be the next largest, generally in terms of population.

Despite rising demand in interior third- and fourth-tier cities — particularly in coal-rich central China or the southeastern coast — most luxury brands have been slow to invest there, due to a dearth of quality retail space, unproven consumers, and the simple costs involved in the expansion effort. However, Louis Vuitton has a presence in third-tier cities like Suzhou and Wuxi (which are considered by some to be second-tier owing to their wealth), while Cartier has expanded into lesser-known cities like Anshan, Boutou, Jiangyin and Nantong.

Though relatively few brands have made the leap into third- and fourth-tier cities, attendees noted that any brand taking a long view of the market understands that it’s a clear trend.

Still, the particularities in defining first- and second-, third- and fourth-tier cities are hard to pin down. While they’re often delineated in terms of mega-cities like Beijing and Shanghai (first-tier) and provincial capitals (second-tier), there are many exceptions. For example, Suzhou and Wuxi — due to their wealth — are widely considered second-tier cities despite not being provincial capitals, while Hefei, capital of Anhui province, is seen by some as a third-tier city.

Within third- and fourth-tier cities, consumers remain highly diverse and they are far from a single market. To use the example of Wuxi and Suzhou, despite being relatively small urban areas, I know some government workers, entrepreneurs and doctors who have two houses, one or two cars, and a strong passion for luxury brands. At the same time, their spending power doesn’t mean they have the same spending habits as their counterparts in other cities. For example, wealthy executives like to bring women or friends to accompany them to luxury boutiques and make purchases based on their suggestions. This advice often plays a decisive role in the purchase of a recognizable brand, and can kick off a peripheral trend [if the customer is highly influential]. Due to the lower cost of living in third- and fourth-tier cities, wealthy individuals there have more disposable income, and their shopping choices are limited, so they tend to spend a great deal on “early adopter

adapted from Jing Daily