Source: Ran Finance (ID: rancaijing), Author: Jin Yufan, Editor: Alun

Imitating the lifestyle of first- and second-tier cities, using what big-city people use, they feel they are living the life of city dwellers;

The parenting philosophy of "small-town ladies" is to choose only the most expensive; they want the best formula, the best diapers, and even baby bottles that match those of first-tier city moms;

Small-town shop owners are the KOLs of the lower-tier market, holding the trust nodes. Due to competition with e-commerce, they spread negative news about online shopping, magnifying its drawbacks;

An unspoken rule in the formula industry is that regardless of the factory price, after multiple layers of distribution, the final price at lower-tier stores is at least 300 yuan, because lower-tier users believe formula below 300 yuan is counterfeit or inferior;

The trick in the lower-tier market is "buy formula, get everything free," including toys for kids, big appliances the family lacks, such as TVs, air conditioners, washing machines, and electric tricycles;

Living in big cities like Beijing, Shanghai, Guangzhou, and Shenzhen, you can buy the world's best formula for 100-200 yuan, while people in county and town markets pay two to three times that price for formula of unknown origin.

"If you don't mention the 'lower-tier' concept, you can't even claim to be in the retail circle."

Pinduoduo, Kuaishou, and Qutoutiao, which rapidly rose in third-, fourth-, and fifth-tier cities, have made the lower-tier market the banner of demographic dividends. "Beyond the Fifth Ring Road" has become a market that all business models, especially retail, must revisit. But Taojiji, which made 100 million users in a year, collapsed, telling speculators that concepts need to be grounded; the lower-tier market is not paved with gold.

The focus of the lower-tier market has always been women, who control household spending. According to Analysys's "2019 Insight into Lower-Tier Market Consumers' Online Shopping Trends," women account for 48.4% of the overall lower-tier internet population, and among mobile shoppers, women account for 57.2%, higher than in first- and second-tier cities.

The report also shows that in 2019, in terms of city distribution of maternal and infant consumers, third-tier and fourth-tier and other cities together accounted for 46.6%, indicating a clear trend of channel sinking in maternal and infant consumption.

In 2018, China had 15.23 million newborns, with 80% born in third- to sixth-tier cities. Zhang Jianfu set his sights on the baby formula business in the lower-tier market. The best way to explore a new market is to integrate into local life and uncover their cognitive logic and consumption habits.

To this end, Zhang Jianfu, former VP of Amazon China and former COO of Mia, with his startup project "Jina Youpin," spent a year and a half visiting over 100 counties and towns in central and coastal China.

He summarized the hidden labels of lower-tier users and the unique trust nodes of small-town economy. These insights are not only relevant to the maternal and infant industry but also applicable to all business models targeting the lower-tier market.

The following is Zhang Jianfu's account (edited by Ran Finance):

-01- A Society of Strangers Who Know Each Other

The lower-tier market generally has a slower pace, and people's lives are routine. They wake up at 7 a.m., have breakfast, send kids to school, go to work, come home for lunch, nap, go back to work, return at 6 p.m., have dinner, gather for mahjong or square dancing, and are usually asleep by 9 p.m.

Their most time-consuming activity is "killing time." Men spend it on paid games, online reading, and short-video apps; women are "buy, buy, buy," but not high-frequency purchasing—it's high-frequency browsing. The physical retail in small towns is very developed, with grocery stores, supermarkets, cosmetics shops, and restaurants being the most prominent.

I define the core users of the lower-tier market as small-town youth and small-town ladies. Don't think "small-town lady" is a derogatory term; their job is not to earn money but to take care of children and spend money for the family. These two groups have advanced consumption concepts and high purchasing power. Both offline physical retail, online e-commerce, and short-video platforms like Douyin and Kuaishou mainly target these two groups.

Among all retail formats, maternal and infant stores have the highest customer quality and the strongest store owner operational skills. A store owner can aggregate 1,000-2,000 moms, who spend time browsing and consuming.

Because they have no car loans or mortgage pressure, their spending power is not weaker than that of first- and second-tier cities. Our market research found that lower-tier families typically have a monthly income of 6,000-8,000 yuan, with disposable cash income around 4,000 yuan, half of which is spent on children.

Their parenting philosophy is to choose only the most expensive; they want the best formula, the best diapers, and even baby bottles that match those of first-tier city moms. During my store visits, I encountered a mom who specifically asked for Hegen, a Singaporean bottle priced at nearly 300 yuan.

Lower-tier users have a natural reverence for big brands. They imitate the consumption concepts and lifestyles of first- and second-tier cities, feeling that using what big-city people use means they are living the life of city dwellers.

However, the commercial development in counties is extremely lagging, still at a relatively primitive commercial society around 2000, especially unable to meet high-ticket bulk consumption needs.

In many counties, people have to go to prefecture-level cities to buy big items. Now that transportation is convenient, they even go to provincial capitals.

For example, Yang County in Shaanxi is about an hour's drive from Hanzhong, the prefecture-level city. With the high-speed rail, Yang County to Xi'an is also an hour, so Yang County's bulk consumption shifted from the prefecture-level city to the provincial capital. The consumption needs of similar lower-tier markets are actually unmet; what we see is a vast blue ocean market.

Image / Provided by interviewee

In counties or small towns, two strangers can always find a mutual acquaintance. I describe this as a "society of strangers who know each other," which brings another typical feature of the lower-tier market: trust economy—only after establishing trust can transactions be converted.

A small shop owner is a KOL, holding the trust node of the lower-tier market. Whatever information they pass on, whatever products they promote, their users (in a sense, their fans) accept it.

In the lower-tier market, physical stores are naturally a trust endorsement. People think that although things in the store are a bit more expensive than online, if there's a problem, they can directly go to the store. The store is there; "the monk can run away, but the temple cannot." They would rather pay more for "peace of mind."

Additionally, due to competition with e-commerce, store owners spread negative news about e-commerce, magnifying the drawbacks of online shopping. And small-town residents are unwilling to pay a high tuition fee for trying new things.

When those who hold trust nodes in the lower-tier market become adversaries of e-commerce, it's no wonder that giant e-commerce platforms can't sink down. The lower-tier market is a blue ocean, but also a deep sea—a market that many large platforms and chain enterprises cannot penetrate.

-02- Buy Formula, Get Everything Free

After traveling through the lower-tier market, I sometimes feel dazed, not knowing whether first- and second-tier or lower-tier users have stronger purchasing power. Before going, I inevitably had biases, but after going, I found it wasn't the case.

Take formula as an example. The cost varies greatly; a can can be as high as 70-80 yuan or as low as 30 or even 28 yuan.

In first-tier cities, but in the lower-tier market, the terminal price is between 300-400 yuan, with the cheapest at 299 yuan per can, and most priced at 349, 358, 368, 399, 459. The pricing is even more "first-tier" than first-tier, and most are brands that first-tier users have never heard of.

The maternal and infant stores in the lower-tier market are very abnormal, with 60%, even 80% or 90% of sales relying on formula. We did research: in a town with a population of 50,000, there are about 500 newborns per year, and at most 15 maternal and infant stores. Each store having 30-50 newborns is already good. If each newborn consumes 4 cans of formula per month, and the store owner earns 10 yuan per can, that's only 2,000 yuan a month—not even enough to drink the northwest wind.

This leads to the unspoken rule in the formula industry: regardless of the factory price, after multiple layers of distribution, the terminal store price is at least 300 yuan.

First, because users believe formula below 300 yuan is undrinkable, all counterfeit or inferior.

Second, formula brands have different pricing strategies in different markets. The more down-market, the higher the channel profit margin. Brands give high profits to store owners, using marketing tactics to capture users. Generally, store owners earn 100 to 200 yuan profit per can of formula sold.

Only with sufficiently high profits do store owners have the motivation to promote a single product. Additionally, after multiple handovers, formula reaches lower-tier terminal users with a markup far greater than in first- and second-tier markets, leading to the prevalence of off-brand and low-quality, high-priced formula.

Competition among stores is fierce at a low level. To get high profits, store owners need not only extensive parenting knowledge but also, most importantly, a marketing approach suitable for the lower-tier market that captures users' minds. This is something we in first- and second-tier cities can't learn, and it's a height I've always aspired to in my years in retail.

What does capturing users' minds mean? It means whatever I say, users believe. The common trick for store owners to gain trust is "buy formula, get everything free," including various toys for kids, big appliances the family lacks, such as TVs, air conditioners, washing machines, and electric tricycles.

Formula manufacturers have done research: it takes 4-6 weeks for a child to perfectly switch to a new formula. Store owners know that once a child starts eating their formula, the annual per capita consumption of 15,000 yuan is locked in. So with 50 children, that's 750,000 yuan a year, from which the store owner takes 35-40% profit. This is absolutely high income locally, allowing a good life in the town. Of course, they are willing to give up some profit in the form of gifts for marketing.

-03- One Visit, Ten Repeat Purchases

Once, in a town in Anqing, Anhui, I was chatting with a local store owner about the new retail model. As we talked, three customers came in: an older sister with her younger sister and brother-in-law, a typical old-customer-brings-new scenario. The older sister, a regular, asked, "Do you have Formula A?"

The one she wanted was the best in that brand, a flagship product, indicating she was a high-precision customer who had done her homework and was set on this one. The clerk was about to nod, but the owner took over and said to me, "Give me 10 minutes."

"What's wrong with you? Letting your child drink this formula!" The owner started by scolding the sister. The three were stunned. The basis of this statement was, "I am more authoritative and professional than you; I'm doing this for your good."

Seeing it was effective, the owner began guiding this precise user into his standard sales pitch. "Formula A lacks this and that... You see it recommended online and on TV, which means they spent a lot on advertising. With such a high advertising cost, how good can the formula be?" The family nodded frequently. The owner then recommended, "Just drink B. So-and-so's child drank it, and their bowel movements were great, and it's cheaper than A."

No formula is perfect or flawless. Every formula in the store has a sales pitch targeting competitors—one set for the same brand, another for different brands—always comparing the shortcomings of other formulas with the advantages of the one he sells.

He also had Formula A in his store, but it was hidden in the most obscure corner of the shelf and not expensive. Why didn't he sell A but B? Because A is a common product, earning less than 20 yuan per can, while he has the agency for B.

The family started asking, "How much is B per can?" They had forgotten they came with a purpose. The owner said, "349 yuan per can. You're lucky today; it's the last day of the promotion. Buy 5 get 1 free, so it's only 290 yuan per can." The family began calculating. The owner turned and pointed at us, "See, the factory boss is here. I'll make a decision today: buy 40 cans, get 10 free, that's 3,500 yuan worth of formula for free."

Image / Provided by interviewee

The mom had no resistance left and directly asked, "Can you throw in anything else?" At that, the owner picked up a Bluetooth learning story machine from the counter, "It's 299 yuan in my store; I'll give it to you!" Actually, it was a gift from the formula manufacturer, costing 70 yuan to procure. "Then I'll scan the code," the owner said, starting to scan each can. The mom continued, "Anything else?" She looked down and saw a baby walker, "Throw in that, and I'll pay."

"You're so troublesome! I've already given you 3,500 yuan worth of formula, and you still want more! This is a sample; I can't give it to you. Let me go upstairs and see if there's any stock." The owner ran upstairs, then ran back down without delay, carrying a walker. "This is the last one; you're lucky. I'll give it to you."

Then, with a "click," he turned the computer screen around, "13,960. How will you pay?" The mom obediently took out her phone and paid. The owner noted her name and phone number, instructing, "Take two cans today; come back anytime for the freshest batch." This meant the user would continue to repurchase.

The family was about to leave when the mom spotted a fake Burberry scarf hanging on the wall. She grabbed one, "Boss, throw in a scarf, thanks!" and wrapped it around her neck as she left. The owner said nothing, knowing he must satisfy the user's desire for small bargains so she would return. He sat down and told us, "She'll come back at least 10 times. Watch, each time I'll make her spend 300-500 yuan."

The whole process took 12 minutes. The owner spent 70 yuan on the learning machine, 30 yuan on the walker, and 10 yuan on the scarf—110 yuan total—to get the user to prepay nearly 14,000 yuan. Not only was this mom's annual consumption locked into the store, but she would also introduce friends, and for any minor or major issue with her child, she would definitely contact the owner first.

"What if the child hasn't had a bowel movement for three days?"

"Drink some probiotics."

"What if the child has a fever?"

"Don't go to the hospital; I have lactoferrin here to boost the child's immunity."

-04- When the Wolf Really Comes, It's Dangerous

This is the current small-town economy. All stores sell this way, prices are similar, and the tactics are the same; users have no choice. Moms are not only fought over by store owners but also caught in the tug-of-war of county-level formula agents.

To acquire customers, salespeople for formula distributors in the lower-tier market usually do "cold visits." They typically drive vans loaded with all stages of the agency brand's formula and various gifts—toys, snacks—and go to villages, looking for homes with children or children's clothes drying in the yard, then push the door open and start chatting.

Once they find the child's formula is not from their agency brand, they start sharing parenting knowledge, leading the user into standard marketing scripts. To get the user to accept, they give free trial packs, gifts, snacks, using various means. In more extreme cases, agents swap their brand's formula for the user's current formula, for example, if the user has 5 cans, they'll exchange 6 cans.

During my visits, I deeply realized that whether in the more open coastal areas or relatively backward inland provinces, these small-town store owners' marketing tactics to capture users' minds also reflect kindness and enthusiasm. They treat strangers, people of any profession, like their own relatives—cordial, friendly, always enthusiastic, and they will help if there's any possibility.

This is a common trait of lower-tier market people and a marketing method deeply ingrained in small-town store owners. I call it a "professional state." Only store owners who achieve this state can survive well in the local market.

After walking through these counties and towns, you gradually fall in love with the lower-tier market. Moms in big cities like Beijing, Shanghai, Guangzhou, and Shenzhen can buy the world's best formula for 100-200 yuan, while people in county and town markets pay two to three times that price for formula of unknown origin. This contrast pains me. But it's not the store owners' fault; they don't know the real production situation of the formula.

Handwritten ledger of a small-town store owner. Image / Provided by interviewee

The long-standing problems in the lower-tier maternal and infant market are fragmented supply chains and extremely backward operational management. According to my observation, half of the stores still keep manual accounts. I founded Jina Youpin to build a channel to deliver high-quality domestic formula from first- and second-tier cities and cross-border bonded premium formula down to lower-tier markets, to level the playing field for children in urban and rural areas as much as possible.

Of course, we also rely on small-town store owners with top operational capabilities. If locals are still willing to spend 300 yuan on a can of formula, then we deliver at a price locals accept, at least ensuring formula quality while protecting store owners' interests.

With the proliferation of smartphones, e-commerce is gradually penetrating the lower-tier market. Lower-tier users now have more than one way to access product knowledge; they no longer rely solely on store owners. The discourse power advantage of small-town store owners is being leveled, especially as social e-commerce born in the lower-tier market has risen, making survival harder.

At the same time, store owners hold thousands of core users. By operating this group through WeChat, the retail scenario extends. At least 80% of store owners are aware of this, but no one or only a few actually do it. Their original life was too comfortable; they are unwilling to spend time learning. More importantly, they lack methodology and systematic tools.

Our Jina Youpin's Na Xiaodian expanded to 4,000 stores in a month and a half, but less than 20% are effectively operated. Na Xiaodian's current strategy is to focus on counties and towns in Sichuan and Anhui, two populous provinces. We chose Anhui because after the Fuyang "big-headed doll" incident, the saying "China's formula looks to Anhui, Anhui's formula looks to Fuyang" emerged.

Over the past year, we have continuously adjusted our strategy, researching how to get lower-tier store owners to accept new tools and operational methods. Starting this September, we began opening direct-operated stores, directly exporting the new retail model, teaching community operations hands-on, and even providing customer acquisition subsidies and operational red packets to store owners. It's like we've cooked the meal; store owners just need to eat.

In the next three years, if traditional retail formats don't adjust, the money earned during the dividend period will be lost. Now, more and more store owners are accepting empowerment. Otherwise, when the "wolf" really comes, it will be dangerous.

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