On July 26, 2018, Pinduoduo went public on NASDAQ in the United States. While marveling at Pinduoduo's rapid development, a term jumped into the public eye and quickly became popular: the "lower-tier market".

Guming Tea, founded in 2010 in Daxi Town, Wenling City, Taizhou, Zhejiang, only serves small-town markets. Today, it has over 1,600 stores and annual revenue of over one billion yuan.

Whether it's Pinduoduo or Guming Tea, the success of these companies has shocked businesses that have always focused on first- and second-tier cities and fought bloody battles there. In the past, we always believed that first- and second-tier cities, with their large populations, strong consumption power, developed logistics, and complete supporting facilities, should be the core and only battleground for every company.

But little did we know that China's rural population has always been the majority. With economic development and the construction of a new countryside, today's rural areas are no longer the mud-walled houses and livestock-filled scenes of the past. Today's rural areas feature neatly planned new houses, small parks, and small supermarkets. Small towns are no longer just a single wholesale-retail store and a restaurant, but have decent supermarkets, even small shopping malls, cinemas, and coffee shops.

Regarding the "lower-tier market," the consumer goods sector mentions and discusses it the most. Everyone is cheering that it's a blue ocean market, an undeveloped virgin land, a huge "gold mine." However, there are many who talk and cheer, but few who actually go down and create leading customers focused on the lower-tier market.

I've read many articles about the lower-tier market. Almost all research on the lower-tier market tells us about the vast size of this market or some plausible-sounding strategies, but in my view, these studies are more based on imagination relative to urban markets.

That the lower-tier market is a gold mine is an indisputable fact. But it seems few people tell us exactly how to fight this market. Few tell company decision-makers what effective actions to take in the lower-tier market!

As a company that sells products and services down to the village level, and as someone who spends dozens of days each year in towns and villages, I think I am qualified to analyze the hot "lower-tier market" and attempt to summarize how Coca-Cola wins in the lower-tier market.

-01- What is the lower-tier market?

Before discussing how to fight in the lower-tier market, let's first define its boundaries. Is the lower-tier market just county and township markets? What are its characteristics?

In my view, the lower-tier market should not be defined by geography. China is vast, and economic differences are huge. For example, a township in the Pearl River Delta (like Changping Town in Dongguan) may be equivalent to a prefecture-level city in the northwest; the largest village in the Chaoshan region has a population of over 100,000!

The lower-tier market should be distinguished by economic scale and population structure, such as per capita income below a certain amount, dominated by locals, with a population structure mainly of small-town youth, elderly, and children. The definition criteria can be set by each company according to its industry. Whatever the numbers, there must be standards.

-02- Lower-tier market: sinking people, money, and materials

The first step in the lower-tier market is the sinking of people, money, and materials. Who will do it, how much money to spend, and what materials to allocate are the basic elements.

1. Sinking people

Let's talk about sinking people first. To do something, the primary task is organizational structure: who will do it and what responsibilities they will bear. Set up a department or office. In terms of staffing, besides basic frontline sales representatives, you should also configure market representatives responsible for planning market activities and allocating resources.

A significant difference between the lower-tier market and urban markets is the relative concentration of consumption. What does that mean? If divided by time, the consumption curve in urban areas is relatively flat; even during holidays, it's only about 1.5 times the usual. Consumption is large but relatively uniform. However, in the lower-tier market, consumption has obvious peaks and valleys; on a certain festival, it might be 10-20 times the usual.

These festivals are not only national holidays like Spring Festival, Mid-Autumn Festival, and Dragon Boat Festival, but also local special festivals, such as temple fairs, dragon boat races, and worship festivals.

These important festivals are not only the best time for sales but also the best opportunity for brand exposure. Market representatives should integrate into the festivals, understand them, and find market opportunities during peak consumption periods, while matching corresponding resource investment.

2. Sinking money

Regarding sinking money, many people want to enter the lower-tier market, but when they see no budget or a very small budget, they think it's not worth it. Some even think they can just sell products without investment, which is not advisable. Once you decide to enter the lower-tier market, you must match it with corresponding ammunition.

The advantage of a budget system is "mandatory investment." Often, spending budget on brand building may not produce immediate results. At this time, decision-makers must have determination. Brand influence accumulates bit by bit; investment now may only show results in the second or even third year.

Of course, it's not just about allocating a sum of money; you must break down the budget. The more detailed, the more obvious the effect. For example, plan 20,000 yuan for a worship festival, including 10,000 for sponsorship, 5,000 for materials, and 100 boxes for tasting.

3. Sinking materials

Regarding sinking materials, there are two aspects: first, products; second, materials.

The lower-tier market differs from urban markets in consumption capacity, with a focus on the elderly and children, so family packs, large packs, and value packs are the first choice.

In addition, taste selection must be mainstream; don't sell strange flavors. For example, for juice, grape juice and pomegranate juice are relatively niche and should not be placed in the lower-tier market; orange juice is the "safest" flavor.

In material selection, fully consider the lifestyle characteristics of the lower-tier market. Take umbrellas and tables and chairs as an example. Five or six years ago, these materials were very popular in urban areas, but now they are rarely seen. Unified urban planning and the proliferation of brand umbrellas have made them almost ineffective in terminal stores.

However, these materials are now extremely popular in the lower-tier market. Not long ago, around 8 p.m., I was visiting the market and passed a supermarket. I saw a group of elderly people watching a TV drama at the entrance of the supermarket; that's their entertainment. At this time, providing the supermarket with umbrellas and rest tables and chairs is a win-win.

Besides promotional materials, there are also some considerations for bundled gifts. In my view, there are two standards for choosing gifts for the lower-tier market: large and practical. For example, the gift for Nongfu Spring's Nongfu Orchard gift box is a vegetable basket. The gift box is for giving, and the vegetable basket is for personal use.

Another example is promotional stainless steel bowls. I told my team, it's okay if they're thin, but they must be large. For promotional tissues, in urban markets, use "Tempo"—refined, looks valuable, not low-class. But in the lower-tier market, it's better to use an unknown brand like "Dabao" but make it look bigger and more.

To summarize, when you have the basic equipment of people, money, and materials, the next step is to plan how to fight this battle. How should the early-stage model and assessment be designed?

-03- Lower-tier market: sinking models and assessments

In the early stage of fighting the lower-tier market, you must first do the surface, not the points. Why? Because the lower-tier market, compared to urban markets, is about relationship-based business.

The success of urban supermarket outlets largely depends on location. Good location, large area, and good decoration usually mean good business. Behind the business is stranger business, traffic business.

But in the lower-tier market, the success of a supermarket has basically nothing to do with location. You can be at a three-way intersection, and I can be a little off the intersection, and both can do well. Behind the business is relationship-based; purchases are relatively fixed. For example, if I buy at a certain store, basically my parents and children will also consume at that store.

In a township, with three adjacent wholesale departments, it's hard to tell which one has better business; each has 3-5 villages they serve regularly. So when you first enter the lower-tier market, you don't know the relationship network behind the store; you must first do the surface. You can't use urban methods to judge; a dimly lit, messy supermarket might do several times better than a brightly decorated "regular" supermarket.

In the early stage, you should first do the surface in terms of model, and only after 1-2 years will you know. At the same time, in the lower-tier market, the boundary between wholesale and retail is relatively blurred, unlike urban areas where wholesale is wholesale. This should be fully considered in resource allocation. Additionally, for corresponding assessments, distribution rate and coverage rate are key KPI indicators.

In employee subsidies, make appropriate adjustments. Replace bus and subway subsidies with fuel (motorcycle) subsidies. Also, I suggest adding an "entertainment/gift fee." Since it's a relationship-based society, you must let your people enter their relationship network.

In terms of visit frequency, urban areas are visited once a week, but in the lower-tier market, due to consumption peaks and valleys, and considering the long distances between towns and villages and scattered stores, it is recommended to visit every two or three weeks, or adjust frequency according to nodes.

The above is about specific tactics and assessment sinking. When doing the lower-tier market, fully consider the business characteristics behind relationship-based networks; first do the surface, then the points.

-04- Lower-tier market: sinking managers

The lower-tier market is not a new market; it has always existed. The real sinking is that managers' "feet" must step into this market.

At the company level, whether it's the boss or managers, they must show attention to the lower-tier market, and the best way to show attention is to go to the market. Only by going down will others truly believe this is important to the company, not just sending a few grassroots staff to try and fool around.

Set up a similar "kick-off ceremony" and require the boss to attend in person. Also, walk the market with the boss. This has two functions:

First, since they are bosses or managers, they must have stronger insight than others. Use their "eyes" and "brains" to discover more opportunities in the lower-tier market.

Second, make quick decisions on problems in the lower-tier market.

In the past, when a problem arose in the market, it often went through frontline reporting, headquarters dispatching personnel for multi-party verification, then review and approval, and finally telling you it could be done. When the boss or management is on site, they can hold meetings, discuss, and make decisions on the spot.

Summary:

In the past many years, the lower-tier market was a paradise for low-quality products. With price advantages, they built deep moats and kept branded products out, but the result was often disorderly price competition among low-quality products, which didn't make these low-quality brands more money. At the same time, they missed the best opportunity for transformation.

Now, with the overall improvement in brand consumption awareness in the lower-tier market, and also to seek growth, more and more top brands are starting to conquer the lower-tier market.

But how exactly to conquer the village convenience stores? I hope this article can give you some inspiration. If you have any good methods or suggestions on how to do the lower-tier market, feel free to leave a comment below and discuss with us.

About the author: Pan Lihua, Sales Operations Manager at Swire Coca-Cola, a student of the 0th class of Dedao University. Over 15 years of sales management experience at Coca-Cola, familiar with FMCG market layout, strategy formulation, and team management. Good at market insight and team motivation.

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