Click to read the original article for details. This article is reposted from: Shiyi's Lazy Dad (ID: ddxtoc)
To understand the lower-tier market, you must fully immerse yourself in it.
As an entrepreneur focused on C-end internet and consumer industries, finding traffic dividends has always been a priority in my work.
From the perspective of 2019, the 'lower-tier market' is definitely one of the most unignorable hot topics. The key event that triggered this phenomenon was Pinduoduo's industry-shocking IPO last year.
While all industry insiders thought Alibaba and JD.com were sweeping the e-commerce market, Pinduoduo, relying on the so-called 'lower-tier market'—an untapped treasure trove of consumers—rose rapidly in just three years, and even briefly surpassed JD.com in market value after its IPO.
From then on, a large number of investors, financial advisors, entrepreneurs, and even industry giants turned their attention to this vast blue ocean market.
For an entrepreneur like me, who comes from a grassroots background, available resources are limited, so for channels that might have traffic dividends, I try to make attempts whenever conditions allow.
Coincidentally, a friend recommended a mall space in a county-level city at that time (my current project is a consumer brand combining online e-commerce with offline chain stores). After inspecting the local environment and finding it satisfactory, I decided to open a store there.
To deeply understand the local people's lives and ways of thinking (of course, the goal was to improve sales), I lived in this county-level city for a full month, from preparation to after the opening.
When I returned to Beijing and shared my observations with friends, they all found it very interesting. This inspired me to present the real lower-tier market to more people, which is the origin of this article.
Let me briefly introduce the county-level city (for convenience, I'll call it C County):
- Located in a populous northern province;
- Belongs to a relatively economically strong prefecture-level city;
- Ranked among the top 100 counties in China, with 4 A-share listed companies;
- Total county population about 700,000, core urban area about 200,000;
- The radiation radius of the county center is about 3 kilometers, meaning beyond 3 kilometers is the urban-rural fringe;
- Basically every household has an electric bike, and it takes 10 minutes to cross the core urban area.
A wall in C County with a rock-and-roll vibe
The following content is based on my personal cognition and observations. Since I only lived there for a month, there are certainly areas where my understanding is incomplete. This is for reference only, and I welcome readers of this article to leave comments and discuss with me.
What I consider cheap is not what C County users consider cheap
Let me start with what's most directly related to opening a store.
When opening a store in a county town, the first issue to consider is definitely price. We have stores in first-, second-, and strong third-tier cities, using a unified pricing system. Overall, acceptance is decent; but when we surveyed similar products or stores in C County, we found that prices weren't much different, which surprised me a bit.
Of course, everyone knows that the lower the city tier, the higher the price sensitivity of users, and C County is no exception (as concluded from user interviews).
So obviously, price naturally became my first weapon to consider.
We run a home lifestyle store with a wide range of categories. Except for fresh produce and large appliances, we can basically meet most daily shopping needs (similar to MUJI). Conversely, this means users have a product foundation for repeat purchases.
Under these conditions, the first price weapon I thought of was a membership system. I'm not referring to the 398-yuan membership of Yunji or Meiri Yitao, but the Costco model that domestic entrepreneurs and media have mentioned countless times over the years, wanting to replicate.
According to our design, paying an annual membership fee gives access to ultra-low discounts (over 80% of products can be the lowest price in C County), saving each household about 10 times the membership fee annually; in return, we only control gross margin to cover monthly costs, with membership fees as the main source of net profit.
But when we opened with confidence, only two users paid the membership fee in the first three days, which was a huge cold shower.
To address this, we conducted a series of user surveys, and the most impressive conversation was like this:
"Your store's products are indeed good quality and diverse. Some products' tag prices are a bit expensive, but the purchase price after becoming a member is very cost-effective."
"So would you become a member?"
"No."
"Why?"
"Because I don't get anything when I pay the membership fee. It feels like throwing money away. Who thinks about future savings?"
This answer actually contains a lot of information. I found it very interesting, so I visited various stores in C County again for a new round of user observation and sales strategy exploration, and drew the following conclusions:
- Due to the small core urban population and no significant population inflow, C County's retail is a thorough stock market with extremely fierce competition. Every store uses super high-frequency and exceptionally aggressive promotional tactics to compete for limited users, making C County users very hard to please;
- The result of 1 is: users must feel they've gotten a bargain at the point of purchase. Don't delay discounts; the method doesn't matter, but it must be simple and understandable, or you'll lose them;
- Based on 2, direct reduction or discount is the first choice, recharge cashback is second, and gifts should always be available;
- C County is small, so it's easy to get to any store, and users have plenty of time. This leads to a phenomenon: if there's a promotion that day, they can come and grab it that day; conversely, if they know in advance about a big sale in the future, they can patiently wait until then... This makes the common sales tactic in first- and second-tier cities, "If you don't buy now, you'll miss out," completely ineffective.
With these conclusions, we adjusted our strategy and launched a large-scale recharge cashback activity. The acceptance was much higher than the initial membership fee model.
However, as an entrepreneur with a product manager background, driven by curiosity, I wanted to explore C County users' ability to calculate promotional complexity. So on top of the recharge cashback, I added discounts of varying intensity and super-value member prices. The most cost-effective was buying several famous internet-famous facial masks at almost half the cost price, perfect for stocking up. But not surprisingly and somewhat disappointingly, this bug that would be exploited to death in first- and second-tier cities has never been used by anyone.
An egg pancake twice the size of Beijing's
Products popular in first- and second-tier cities are coldly received in C County
Let me first talk about a peer's situation.
Everyone knows that MINISO has been incredibly popular in recent years. A big factor is its super supply chain capability, with rich SKU variety, fast iteration, and very cheap prices.
But at the beginning of the year, MINISO said it would create a brand for the lower-tier market called 'Life Excellence'. I found it strange. Given MINISO's existing product strength and prices, entering the lower-tier market shouldn't be a big problem. Why create a separate sub-brand?
After running our store for a while, I roughly got some answers.
As our store's main products, high-quality solid-color T-shirts and loungewear have always been favored by first- and second-tier users, but sales in C County were not ideal, even with a special discount of nearly 30% off.
So, apart from price, what was the main influencing factor? The result was both unexpected and reasonable.
"I wear it at home anyway. Why spend 100-200 yuan on loungewear?"
"Your T-shirt fabric is indeed good, but it's too plain, not fashionable at all."
Cognitive differences.
While more and more users in first- and second-tier cities are wearing loungewear and basic styles, even with smartphones as epoch-making information tools that are greatly reducing the cognitive gap, C County users still have some regional characteristics in consumption habits. This cannot be solved by the efforts of a few companies; the big premise depends on the overall economic development of society.
Looking in the opposite direction along this path, I found that imported FMCG products (especially personal care and beauty) that were very popular in first-tier cities 2-3 years ago are now standard bestsellers in C County, to the extent that "not buying them means you're outdated."
What's more complex is that we had prepared zero-margin traffic-driving personal care products for the county market (mainly P&G-style super-advertised brands with the highest awareness), but C County users dismissed them as "only aunties buy these."
So C County users' product preferences are at a very delicate stage.
After clarifying these differences, it's natural to know that the product selection strategy for the county market must be quite different from that of first- and second-tier cities; there may even be significant differences between counties due to regional and economic levels.
Returning to the beginning of this section, I think it's very necessary to create independent brands for the lower-tier market. Whether it's the product cost structure, the starting point of product selection, or the use of promotional strategies, you need to respond based on the local actual environment.
Mainstream loungewear products and prices in C County
Observation of C County's Business Forms
Next, let me talk about some distinctive business forms I saw in C County.
1. Retail
General stores, or MINISO-like stores, there are 4 in the county: 1 MINISO, 1 Lingli, 1 Hanshang Youpin, and 1 Lianhui Youpin. Lingli and Hanshang have stores in first-, second-, and third-tier cities, so I won't say much. Worth mentioning is Lianhui Youpin, which relies on Yiwu's supply advantages and has stores mainly in 3-6 tier markets. As of last October, it had over 1,600 stores nationwide, with annual sales of over 1 billion yuan, making it a decent underwater project. In C County, MINISO sells best, with monthly sales of about 150,000-200,000 yuan and sales per square meter of just over 1,000, which is a lagging store nationally; but locally, it's an excellent monthly performance.
Clothing stores, although fast-fashion giants haven't landed yet, most domestic second- and third-tier brands have specialty stores in C County. From this perspective, penetration is quite good, but most performance is dismal. Monthly sales of 50,000-60,000 yuan are considered decent. The best I know is Semir, with maximum monthly sales of over 100,000 yuan. Heilan Home has strict management, making it hard to extract sales figures from staff, but with three stores in such a small place, Heilan Home is indeed very impressive. Its highly standardized decoration and high training level make its service several streets ahead of other brands in C County.
Mother and baby stores, this field is special, focusing on safety and reliability, so the strongest in C County is a local chain brand with 15 years of history. According to C County users, this brand's method of locking in new customers is extremely aggressive: if a pregnant woman comes to the store and isn't a member, they immediately give her a new mom gift set worth 500 yuan, thereby capturing most of her future consumption behavior. This creates a high competitive barrier for newcomers, requiring significant marketing expenses to gain consumer trust, not to mention the decade-long reputation effect.
Mobile phone specialty stores, speaking of which, I have to give a huge thumbs up to OPPO, VIVO, and HUAWEI. On one side of the main road in C County, which is like Chang'an Avenue, within just 400 meters, these three brands have a total of 17 specialty stores of various sizes. With such density, it's unrealistic not to sell a lot. Xiaomi really needs to work harder.
Ads directly on roadside barriers
Beauty stores, are a business form with very good sales performance in C County. A regional chain similar to Watsons has 6 stores in the county, with impressive coverage; imported beauty stores are especially popular. As mentioned earlier, C County users are pursuing various imported products, so as long as these stores have enough variety, it's easy to achieve good sales.
Supermarkets, just one sentence: Yonghui can't beat local brands, mainly due to differences in highly localized categories like fresh produce and food.
2. Catering
What touched me most in C County was that you can find a small restaurant on the street and eat very satisfyingly for just 8-12 yuan; but in Beijing, it's hard to eat comfortably for less than 30-40 yuan.
Of course, that's not the point.
Speaking of lower-tier market catering, I have to say that Zhengxin Chicken Steak and Mixue Ice Cream are really, really awesome.
Zhengxin Chicken Steak has over 10,000 stores nationwide, with annual revenue exceeding Haidilao; Mixue Ice Cream is the king of chain tea drinks in the lower-tier market, with over 5,000 stores nationwide. Both are very typical underwater project kings.
What's impressive about Zhengxin Chicken Steak is that it uses a completely unified pricing system across all cities in China, which makes me very curious whether their Beijing stores can achieve revenue balance;
The invisible champion of the domestic chain catering industry
What Mixue Ice Cream is strong at is that no product exceeds double-digit prices. A 500ml lemon tea for 6 yuan contains half a lemon, truly making the product scream-worthy.
Mixue Ice Cream products and prices
Apart from these two typical cases, one more thing to note is that many stores in the county are indeed imitating well-known brands from first- and second-tier cities (such as Hongjihuang, Huanglihuang, etc.), but this is actually the behavior of the merchants themselves, not the will of C County users. It's not appropriate to mock the lower-tier market for using knockoff brands; this is more determined by the supply market.
3. Service Industry
In C County, I found a particularly interesting phenomenon: everyone is into beauty treatments.
For example, in the most popular mall, beauty salons always have a steady stream of customers; even the seemingly failing department store still has some users, precisely the stalls where people lie down for facials; the most exaggerated is that even in the morning market, a very down-to-earth place selling vegetables, there's a shabby little room receiving a constant stream of customers asking for beauty treatments.
The commonality is that these users are mostly housewives with a certain economic foundation, plenty of leisure time, and limited by the county's poor entertainment options, they use beautification as the core pastime. It's said that in our mall, the best beauty salon has a monthly net profit of as much as 80,000 yuan.
4. Others
There's a hotel that's an outlier in the entire C County market: rooms over 20 square meters, free laundry, free breakfast, high-speed WiFi, 2-year-old building, yet the room rate is only 139 yuan. Frequent travelers should know that a hotel with such cost-performance is hard to describe in words. I basically stayed there for the month I lived in C County, and I looked at other options, but they were incomparable. So I'm very curious how this hotel, which crushes the competition, was designed.
Super thoughtful hotel
Also, I finally understood why live streaming is an extremely popular entertainment method in the county market. In all of C County, there are 4 KTVs, 2 discos, 1 bar, and 2 arcades in malls, making pastimes extremely scarce. Before bed or during other leisure time, scrolling through Douyin, Kuaishou, or watching live streams is an irreplaceable and efficient form of entertainment.
One more thing: C County has about 4-5 nightclubs. In such a highly acquaintance-based society, how nightclubs can have such vitality is also worth continuous exploration.
Even host clubs exist, magical C County
Points Worth Noting for the Internet Investment Circle
1. Transportation
C County has many taxis, and since the area is small, you can basically wait 1-2 minutes on the roadside for an empty cab or a shared ride, which is much more efficient than Didi. The only place where platform value is evident is cross-city ride-hailing. But embarrassingly, 90% of ride-hailing drivers are basically full-time, and after taking orders on Didi and Hello, they pull users into their own WeChat groups, turning the platform into a tool for traffic laundering.
There are no shared bikes at all, but surprisingly, there's a shared e-bike brand in operation. Maybe for a county town's size and population density, e-bikes are more efficient than bikes. And from my observation, this e-bike service has decent usage efficiency.
2. Catering
In C County, there are 0 coffee-focused beverage shops. I don't know if it's because there's no habit of drinking coffee or because tea shops are too strong. Besides Mixue Ice Cream, several others survive.
Looking at the distribution of restaurant types across the county, C County users don't seem to be a group with high culinary pursuits. The styles are relatively single, and most dishes are somewhat rough in preparation.
The only highlight is a newly opened high-quality bakery that is very popular in C County, with monthly sales of over 200,000 yuan, busy from morning to night, and it crushed the local most famous bakery after opening. To give an example, it's roughly the relationship between Paris Baguette and Wedome.
3. Beauty Industry
Earlier I mentioned that beauty salons are very popular. In addition, there are also dozens of nail and eyelash salons of various sizes, proving that the market demand is large, but there's still a lack of professional chain brands. Of course, this is also related to C County's relatively good economic level. Female users, with no worries about food and clothing and plenty of time, spend it all on beautification.
4. Entertainment
As mentioned earlier, C County's entertainment venues are relatively scarce, so users invest a lot of leisure time in Kuaishou, Douyin, and live streaming. From this perspective, entertainment projects with strong experiential elements should still have some opportunities.
5. Others
(1) Tanche, has 2 stores
Tanche's business growth in the past two years is obvious to all. The main reason is that the store-based customer acquisition model fits well with target users. The store network has both breadth and depth, which is impressive. Personally, I think it's a representative successful case among the many online-offline integration projects in recent years.
(2) Yunmi, has 2 stores
Yunmi, a large appliance brand on Xiaomi's ecosystem, opening two stores in the same county town surprised me a bit. Although buying large appliances offline in county markets has certain advantages, I feel it would be better to get a spot in the most popular mall. I wonder what the strategy behind this is.
(3) Chao Yi Ku
This is the most, most, most, most, most, most, most, most awesome business form I saw in C County.
A lower-tier version of Uniqlo + home textiles, about 2,000 square meters, with prices basically on par with clothing on Pinduoduo. The quality is a bit rough, but definitely sufficient for residents of townships, villages, and towns under the county. The styles are extremely rich, and what's even more impressive is that the display is not sloppy at all, and the traffic flow design is good. The pre-opening promotion was also very down-to-earth: various Kuaishou promotions, wrapping box trucks with body ads and having a fleet drive around the county with loudspeakers, electric bike teams with flags on their backs parading... This all-around, no-dead-angle bombardment ensured instant popularity upon opening. When I visited, users were pushing supermarket shopping carts and throwing clothes into them as if they were free.
Honestly, I feel this offline business form is almost at its extreme. If I were an investor, I would definitely invest in them (though I heard they're wealthy and don't need money).
Chao Yi Ku's various professional and down-to-earth tactics
(4) Although the pedestrian street still has some foot traffic, decline is inevitable. Counties like C County with good economic development have already seen the emergence of Malls. If you're a chain brand, you need to seize this trend.
(5) Daigou and WeChat businesses are a very powerful retail channel in C County. Due to time redundancy and relative supply scarcity, local users consider buying through daigou and WeChat businesses as very normal behavior. And the county's acquaintance society provides reliable trust endorsement, making it an absolutely unignorable force.
Summary:
During the month I lived in C County, I encountered all kinds of people and things. I observed the entire county from the perspectives of an ordinary person, an entrepreneur, and even an investor, and indeed felt many differences from the first- and second-tier environment.
In my view, all these differences can essentially be attributed to differences in people's ways of thinking and cognition. So the best way to enter a new market is to deeply understand the local people's living conditions, then dig out their ways of thinking and cognitive habits, and then map them to various business forms to find opportunities.