Source: CHEAA-run China Appliance magazine
The freshly-ended double 11 shopping festival further attests to the value of lower-tier markets, and drives the rising trend of “e-commerce platforms to lower-tier markets” to a new high. With home appliance manufacturers and e-commerce platforms including Alibaba, Suning, JD and Pinduoduo involved, a war on lower tier markets is in full swing.
Where there are users, there are commercial wars.
Amid the broad sluggishness of consumer market in 2019, the previously-booming online market slows down in growth. At this point, expanding user base become a common issue facing both home appliance makers as well as e-commerce enterprises. Where there are users, there are markets. This year, industry players all start to lock their eyes on the fast-growing lower-tier markets as if by a prior agreement.
The sales report for double 11 shopping festival certifies the strong purchase power of lower-tier markets. It is learned that, the combined online retail sales value nationwide from November 1 to 11 this year amounted to 870 billion Yuan, up by 26.7% year-on-year, of which 70% new buyers came from emerging markets which include 3-4 tier cities, counties and towns. The double 11 big data report from Baidu shows that, people from third and lower tier markets have been more and more involved in this festival this year with a growth of 70% up from 2015, way beyond the 30% growth in first-tier cities and 35% growth in second-tier cities.
In fact, the number 70% pops up frequently in the fiscal reports of the leading e-commerce platforms after the June 18 shopping festival this year.
As of the end of June this year, the number of mobile monthly active users on China’s e-commerce platforms that include Tmall and Taobao reached 0.755 billion, yearly active users 0.674 billion, of which 70% came from lower-tier markets, according to Alibaba’s report on Q1 earnings of FY 2020.
Xu Lei, CEO of JD Retail reveals at the company’s communication meeting on Q2 earnings that, new users from 3-6 tier markets grow faster than 1-2 tier markets, and 70% of the company’s new users come from lower-tier cities. The latest statistics from JD show that, on the company’s new app Jingxi which is designed to target lower-tier markets, 70% of users come from 3-6 tier markets from October 18 to November 10 this year, and when it comes to new users, those from lower-tier markets account for 75% on Jingxi.
The yearly active users of Pinduoduo rose by 39% to 0.536 billion, marking the first time the company touch the 0.5 billion milestone, according to the company’s Q3 report of this year. Data from Mob Tech shows that, 64.1% of Pinduoduo’s users are based in third and lower-tier markets. The e-commerce heavyweight who got its roots in lower tier markets is now moving up to 1-2 tier markets, while its major use base is still beyond Beijing’s Fifth ring road.
Lower-tier markets have great potential to be tapped
During November 1-11 this year, 60% of online orders were placed by users from lower-tier markets when it came to hot items that include home appliances, beauty care products and furniture, according to Ministry of Commerce. Statistics from JD.com also attest to the strong purchase power of lower-tier markets. On November 11 alone, consumers who placed orders from lower-tier markets grew by 104% and 72% of new users of JD.com came from lower-tier markets.
Double 11 brings out the consumption potential of lower-tier markets. In fact, retail sales growth of consumer products in rural areas has been faster than urban areas, which is regarded as a “new normal”. Lower-tier markets have become a strong engine to boost consumption growth. Statistics from National Bureau of Statistics show that, total retail sales of consumer goods from January to October this year came to 33477.8 billion Yuan, up by 8.1% year-on-year, of which 28626.8 billion Yuan came from urban areas, up by 7.9% year-on-year, and 4851 billion Yuan from rural areas, up by 9.0% year-on-year. The growth rate in rural areas lags behind urban areas by only 1%.
When it comes to home appliances, lower-tier markets have long been a key battle field for industry players as the performance in 1-2 tier markets remain sluggishness in recent years. The number of home appliances owned by per 100 households in urban markets particularly 1-2 tier cities is clearly higher than rural areas. For some categories such as refrigerator, air conditioner, washing machine, water heater and range hood, consumers in urban areas have entered a new stage where replacement needs become the mainstream. Amid the general gloominess of economy, digging into the untapped demand of 1-2 tier markets is very challenging, compared to the vast unleashed potential of lower-tier markets where consumers’ purchasing power is increasingly strong thanks to the fast development of rural areas.
Lower-tier markets have become a competitive battlefield.
The exploration of lower-tier markets has been on for a long time
The rise of Pinduoduo draws the industry’s eyes to the markets beyond Beijing’s fifth ring road, and by making a big splash, the company proves the huge potential of these areas. “Sinking” (to lower-tier markets) has become a buzzword of the year. For home appliance players, this word is nothing new. Back to the time when Chine freshly joined WTO, some domestic brands have started to extend their reach to 3-4 tier markets to cushion the pressure posted by international brands in 1-2 tier cities. At the end of 2007, home appliance industry embraced a new wave of “sinking”-the policy of “home appliances to rural areas”. Capitalizing on this, more enterprises expanded to rural areas. And after that, the exploration on lower-tier markets has never stopped despite the ups and downs of the industry.
Compared to the past, this ongoing wave has the characters that belong to this era.
The main battlefield transfers from offline to online this year. With the increasing coverage of internet, the gap between tiers is getting smaller. As of the end of 2018, Chinese netizens numbered 0.829 billion; the internet coverage posted 59.6%, up by 3.8% from 2017 and 2.6% higher than the global average which was 57%; mobile internet users numbered 0.817 billion, much more than the 64.33 million of 2017, according to China Internet Development Report 2019.
Compared to the past waves when home appliance makers and chain stores got more involved, the frontrunners of this round are e-commerce players such as Alibaba, Suning, JD.com and Pinduoduo. They go all out to dig into the potential of lower-tier markets. In March 2019, Alibaba updated its flash sale platform Juhuasuan to target lower-tier markets with a new shopping campaign called “99 Huasuan festival” launched. Suning’s strategic program developed for lower-tier markets-Retail Cloud-unleashes great energy this year. And JD rolled out its new app Jingxi to target lower-tier markets after bought into 5star.cn, a seasoned operator of offline market. Pinduoduo continued to consolidate its user base in lower-tier markets with 10 billion Yuan subsidy offered.
Home appliance makers are also deeply involved. The double 11 reports of enterprises show that several brands including Midea, Haier, Gree and Simens hit the 100 million Yuan milestone. Some categories saw exciting growth on Juhuasuan and Jingxi faster than average. In the battle, some enterprises rise and some fall. The traditional channels of the industry face challenges and transformations. The C2M (consumer to manufacturer) mode, in this process, is making a change to the ecology of the industry chain.
Who will survive and thrive, and who will be out? We’ll wait and see.