One Country, Many Markets — Using McKinsey's ClusterMap Approach to Target Chinese Consumers Using McKinsey's ClusterMap approach, companies can treat China's cities differently, dividing the more than 800 cities into several city clusters, focusing on differences in income levels, geographic location, economic linkages and trade flows between cities, as well as common consumer attitudes and preferences within clusters. Guangzhou and Shenzhen share many similarities, but these two cities, located in the same province and only a three-hour drive apart, differ as much in demographics, language, and consumer preferences as France and Germany. In Shenzhen, four-fifths of residents are migrant workers, mostly under 35, who speak Mandarin or their own dialects and are accustomed to drinking in bars. In neighboring Guangzhou, migrants account for only one-quarter of the population, which is older, predominantly Cantonese-speaking, and accustomed to going to restaurants with family for dim sum. Few multinational companies would apply the same strategy to France and Germany, yet many seem to do exactly that in China. They focus on cultivating the largest markets (first-tier cities like Beijing and Shanghai, and larger second-tier cities like Nanjing) while ignoring the differences among hundreds of other cities. China's market is so vast and growth rates vary so widely that prioritization is essential. Of China's 800+ cities, more than 200 have populations over one million (in all of Europe, only 35 cities exceed one million). Additionally, there are hundreds of cities with populations in the hundreds of thousands. Currently, many companies in China still manage cities one by one. However, by synthesizing their experiences and our research on Chinese consumers, we have identified a more effective and cost-efficient approach: McKinsey's ClusterMap. Instead of simply classifying cities by tier or geographic region, it groups China's 800+ cities into clusters, ranging from as few as two to as many as about 70 neighboring cities. Clusters are determined not only by income levels and geography but also by economic linkages, trade flows, and shared consumer attitudes and preferences. Using ClusterMap helps companies define strategic vision, optimize resource allocation, and track performance. Compared to managing cities individually, clustering enables synergies in sales forces, distribution channels, supply chains, and marketing across broader areas, making efforts more effective and cost-efficient. At the same time, it provides more granularity than simply dividing China into a few regions. McKinsey ClusterMap: From City Tiers to City Clusters McKinsey's ClusterMap divides Chinese cities into 22 clusters, each centered around one or two hub cities. To ensure feasibility and applicability, all satellite cities are within 300 kilometers of a hub city, and each cluster's GDP exceeds 1% of China's total urban GDP. Among these 22 clusters, we define seven as "mega." In 2008, their populations ranged from 19 million to 55 million, and each accounted for 5% to 12% of China's urban GDP. Another ten clusters are defined as "large," with populations between 13 million and 39 million. ClusterMap covers 606 of China's 815 cities, representing 82% of the urban population and, by 2015, is expected to account for 92% of urban GDP. The number of clusters a company ultimately uses can vary. Some may merge clusters to achieve economies of scale in distribution or because of similar media viewing habits and channel preferences. Others may split clusters into two or more smaller ones due to internal differences (e.g., competitive dynamics or consumption habits) requiring distinct strategies. Four Factors in Defining Clusters Before mapping clusters, we analyzed China's 815 cities along four dimensions: industry composition, government policy, demographics, and consumer preferences. Industry Composition We examined the industrial structure (whether the economy is oriented toward services, manufacturing, or agriculture) and the degree of integration in economic activities and trade flows among cities within a cluster. Industrial structure and economic linkages determine demographics, income levels, and ultimately consumer preferences and behaviors. The formation of end-to-end industrial value chains is one factor promoting economic integration. For example, SAIC, China's largest domestic automaker, and its successful joint venture with General Motors spurred the development of a comprehensive auto parts supplier network in Shanghai's suburbs and surrounding cities, earning Shanghai the nickname "China's Detroit." Another factor is the distribution of certain business activities across cities. For instance, many high-tech companies locate administrative functions in Shanghai while placing manufacturing in development zones like Zhangjiang Hi-Tech or nearby cities like Kunshan. Government Policy Government forces strongly shape China's urban development. In recent decades, industrial, economic, and population policies at central and provincial levels have accelerated cluster formation. In 1989, the government announced policies encouraging economic cooperation among large cities and between large and small cities. For example, in the 11th Five-Year Plan starting in 2005, the State Council identified 11 city clusters to promote growth, strengthen transport links, and influence population flows. Cross-city infrastructure and development projects also strengthen economic and transport ties. Other policies target specific regions with very specific goals. For instance, policies aimed at making Inner Mongolia the "Dairy Capital of Asia": as the region's industrial structure shifts toward dairy production and sales as the main economic driver, more people are attracted to employment in the industry, earning similar wages, and likely developing similar consumption preferences. Demographics The ratio of local to migrant populations, age structure, income levels, and household savings rates are key demographic factors we use to define clusters. The influx of large numbers of migrants into cities has profoundly changed China's urban landscape. McKinsey Global Institute research shows that between 1990 and 2005, 100 million migrants moved into cities. By 2030, an estimated one billion people will live in China's cities. Urbanization's impact varies greatly across clusters, shaping their distinct characters. Shenzhen has 86% of its population from other provinces, speaking Mandarin (and their own dialects); 73% of Guangzhou residents are native Cantonese speakers. Because migrants dominate, Shenzhen is much younger: 55% of Shenzhen residents are aged 20–34, compared to 35% in Guangzhou. 19% of Guangzhou residents are over 49, versus only 7% in Shenzhen. Consumer Preferences Our research shows a strong correlation between clusters and consumer behavior. In 2005, we conducted our first China consumer survey; of 14 major consumer characteristic differences, 9 (such as brand loyalty or willingness to pay a premium) could be explained by the city tier rather than geographic proximity. However, our Q1 2009 survey found that 11 of these 14 differences should be explained by city clusters. We observe significant behavioral differences across clusters. For example, 52% of consumers in the Shanghai cluster prefer branded products, compared to only 36% in the Xiamen–Fuzhou cluster (including cities like Chaozhou, Shantou, and Shishi). Preferences for product features also vary. For instance, consumers in the Shenzhen cluster prefer lightweight, thin digital cameras, while those in the Guangzhou cluster prefer models with large screens. Media preferences differ markedly. For example, 95% of consumers in the "Central Plains cluster" (including Zhengzhou, Luoyang, and Kaifeng) prefer watching CCTV, while 62% of Shanghai cluster consumers prefer local TV programs. Understanding viewing habits helps consumer goods companies with heavy TV advertising allocate media investments more effectively across clusters. We find that factors interact in a virtuous cycle: government policy shapes industrial structure, which influences demographics, which are reflected in consumer behavior. Over time, these factors strengthen inter-city ties and drive convergence in consumer behavior within clusters. Developing a Cluster-Based Strategy After mapping clusters, companies need to decide which to target and what strategies to apply in each. This involves four key steps: identifying the fastest-growing clusters, prioritizing target clusters, setting cluster-level aspirations, and defining strategic "archetypes" and tailoring market strategies. Identifying the Fastest-Growing Clusters Between 2008 and 2015, 75 million urban households will join the middle class (annual household income between RMB 50,000 and 120,000). Per capita consumption will rise from RMB 13,400 in 2008 to RMB 17,000 in 2015. Total urban consumption will reach RMB 13.3 trillion (USD 1.94 trillion), making China the world's third-largest consumer market after the US and Japan. But wealth growth is uneven, so understanding which cities offer the most attractive growth opportunities is crucial for prioritization. For example, Hefei's middle-class share is expected to jump from 35% in 2008 to 67% in 2015, while Hangzhou's will rise only slightly from 73% to 75%. Differences in middle-class growth translate into differences in consumption growth. Among China's 100 largest cities, 25 are expected to double their total consumption between 2008 and 2015, including Beijing, Yantai, Weihai, and Songyuan. Another 25 cities, including Shanghai, Wuhan, and Zhanjiang, are expected to see growth of 50%–100%. Even cities with single-digit growth will outpace global rates, offering substantial business opportunities. As more households join the middle class, they can afford more beyond basic necessities like food and healthcare. Their spending shifts to cars, home appliances, PCs, personal care products, and non-essentials like entertainment and luxury goods. For example, car demand in Hangzhou is projected to grow at 14% annually from 2008 to 2015, while Hefei's is expected to surge at 36%. Prioritizing Target Clusters As lower-tier cities develop, strategies focusing only on higher-tier cities are becoming less cost-effective. Moreover, they concentrate investment risk in cities with low synergies and limited growth potential. ClusterMap helps companies focus on a limited number of priority clusters. For example, before expanding in Xiamen or Fuzhou, investing in cities around Guangzhou may yield faster growth, lower costs, and higher returns. In priority clusters where companies already have strong positions, they can scale up, sharing distribution infrastructure, supply chains, and sales forces across multiple cities, leveraging long-standing local expertise and resources, and exploiting TV viewing synergies. For instance, in the Guangzhou-centered cluster, TV viewers prefer provincial channels broadcasting mainly in Cantonese. A personal care company improved its net margin fourfold by negotiating better trade terms with retailers and logistics providers at the cluster level and discovering that national TV advertising was more effective, allowing it to cut local TV ad spending. Companies can also make marketing choices based on factors like modern trade (department stores and hypermarkets) versus traditional mom-and-pop stores, brand loyalty versus price sensitivity, and willingness to try new products. Additionally, while selecting clusters, companies must choose among cities, channels, and individual outlets within clusters. Setting Cluster-Level Aspirations When considering market leadership across multiple clusters, companies must consider local competitive dynamics and intensity. Many regional players and multinationals have established footholds in certain regions, but some regions contribute disproportionately to profits relative to their size. While national scale matters to some extent (especially for brands advertising on national TV), regional scale is often more meaningful. Many brands achieve regional success even without strong national competitiveness. Take baijiu, a beloved Chinese spirit. Except for a few ultra-premium brands pursuing aggressive national strategies, most baijiu brands hold 40%–50% market share in a cluster or region but only 2%–3% nationally. This pattern is common across more than 20 clusters and many categories. For example, a domestic food and beverage company established market leadership in a few southern clusters, achieving over 40% share, but has little or no presence elsewhere. Companies need to align aspirations with cluster attractiveness and their ability to compete. Once priority clusters are selected using ClusterMap, they should set reasonable, defensible market share targets, such as 40%. Defining Strategic Archetypes and Tailoring Market Entry Strategies Developing distinct strategies for 22 or more clusters is daunting. Tailoring products, training sales forces, managing distribution channels, and designing marketing campaigns for diverse consumers across clusters can quickly exhaust budgets and distract management. Therefore, to prioritize and focus resources, companies should group clusters into three or four representative "archetypes" based on common characteristics and strategic objectives, and develop specific strategies for each. A food and beverage company categorized its target clusters into four archetypes based on competitive position and strategic goals. "Stronghold" clusters are those with significant scale, rapid growth, where the company already leads and must defend its position at all costs. "Must-Win" clusters are those where the company has not yet achieved market leadership but, due to large size and fast growth, aims to dominate. In these, companies need to deploy new product solutions and communication strategies to persuade consumers to switch brand preferences. "Promising" clusters are those where per capita consumption of a specific category may still be low, but projected growth rates far exceed market averages. In these, companies can invest marketing funds in consumer education to raise awareness of category benefits. The remaining clusters are classified as "watch." They are either too small or too competitive to be prioritized. Companies should minimize investment, ensuring only brand awareness and product availability through distribution channels. Of course, what works for one company may not work for another. The food and beverage company identified four archetypes, while a personal care company defined three based on whether consumers prefer traditional bar soap, use liquid soap, or are transitioning from bar to liquid. The latter developed distinct product portfolios, brand and marketing strategies, distribution models, and sales tactics. Using averages no longer captures the true picture of Chinese consumers. With ClusterMap, companies can understand similarities and differences in consumer behavior and consumption patterns, and gain specific insights into how these may evolve in coming years. Whether entering China, accelerating growth by discovering new markets, or seeking to improve margins in existing operations, this understanding helps formulate more effective strategies. Yuval Atsmon is an associate principal in McKinsey's Shanghai office; Vinay Dixit leads McKinsey's Insights China practice in Shanghai; Max Magni is a director in the Shanghai office and head of Greater China consumer practice. The authors thank Zed Padda, Wang Leizhi, Derek Chang, Zheng Yinxin, Zhang Yue, and former employees Ding Ying and Zhang Xiaoying for their contributions to the research. Source: JDB Training -END- Content Selection Click the title below to read directly: [Line Sales Representative Practical Operation Guide (with full PPT download attached)]