China is at the forefront of the world economy. It received the largest amount of FDI in 2014, overtook the US to become the world’s largest economy and is devoted to increasing domestic consumption and urbanization.
In order to best capitalize on China's growth, we suggest companies create territory strategies to connect with potential consumer bases. In this paper, our analysts have analyzed the business environment and consumer trends by city in China, developing tiers for each. These tiers highlight the economic and demographics of each city, making it easier for businesses to identify their target market(s).
For example, Tier 1 and Tier 2 cities make up more than 55 percent of the national GDP value but they also register high penetration of modern retail and foodservice. Tier 3 and 4 cities on the other hand, offer an untapped marketplace for future growth potential. Approximately 65 percent of fast moving consumer goods sales came from Tier 3 and lower tier cities. In order to seize opportunities in these Tiers, a number of brands have been working to target a potential customer base.
“Companies such as Starbucks plan to have a total of 1,500 outlets by 2015 and many of the new openings will be in Tier 3 and lower areas,” says Senior Consulting Manager, James Chen. “However, five years ago around 70 percent of their company’s 400 total outlets were located in Tier 1 cities. Using our tier strategy, businesses can best identify their target markets and begin utilizing strategies to reach those Chinese consumers.”
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