In 2024, the Internet and consumer brands that flock to the sinking market

The lower-tier markets are becoming increasingly popular. Internet platforms are breaking into the lower-tier markets one after another, and consumer brands such as Starbucks and Heytea are scrambling to expand into the lower-tier markets. As large cities become saturated, the vast lower-tier markets have become a hot commodity in the eyes of the public. How to display your skills depends on the strategies of the companies.

During the Spring Festival, China's annual population migration, people feel the cultural and economic gap in the spatial transformation. Many years ago, the successful urban beauties were the focus of class reunions, but now, the consumption of small town ladies makes the migrant workers in Beijing, Shanghai and Guangzhou question their lives.

All these changes point to the sinking market. The sinking market has great potential. On the one hand, it has a large base, accounting for 71% of China's total population; on the other hand, it has strong confidence. When consumers in first- and second-tier cities begin to reduce their consumption desire in a high-pressure society, these 70% of consumers still have great enthusiasm for consumption.

The editor of Morketing also felt the strength of the sinking market during his return home this time. The Bawang Cha Ji, which was difficult to order takeout in Tongzhou, Beijing, was now available at his doorstep in a fourth-tier city in Shanxi. Its popularity is no less than that of the store in Beijing Joy City, with a minimum waiting time of one hour to buy a cup.

Bawang Cha Ji is not an isolated case. In the past two years, brands such as Starbucks, Heytea, and Nayuki's Tea have also been stirring up the market for lower-tier cities by expanding stores, lowering prices, and opening up franchises. In addition, when faced with growth issues, some high-profile Internet platforms have also begun to "seek help" from the lower-tier cities, trying to mobilize the power of the "masses" to break through the circle.

In 2024, the sinking market that has been talked about for so many years has not weakened, but has become even hotter.

1. The Internet is spreading to lower-income countries, and the Spring Festival Gala is the biggest boost

The Spring Festival Gala at the beginning of the new year has already foreshadowed for us the Internet platform’s determination to break out in 2024.

Unlike last year's Spring Festival Gala when the Internet was absent, this year both Xiaohongshu and JD.com, two Internet platforms, had relatively eye-catching performances on the Gala.

JD.com, an old friend, generously gave out 3 billion red envelopes and 100 million gifts. In 2022, JD.com appeared on the stage of the Spring Festival Gala. According to QuestMobile data, on New Year's Eve that year, JD.com's daily active users reached 151 million, an increase of 81.4% from the previous day, ranking first among all APPs.

More than half a month before the Spring Festival Gala, the new friend Xiaohongshu was officially announced as the 2024 CCTV Spring Festival Gala notes and live broadcast sharing platform. This time, Xiaohongshu broke away from the routine of red envelope rain and lucky draws, and used the forms of "watch and buy" and "watch and chat" to retain users, and launched Spring Festival Gala marketing in a way that is more suitable for the content platform attributes of Xiaohongshu.

So why did the Internet platforms, which were absent for a year, make a comeback and invest heavily? In addition to the rapid growth that can be seen at present, in the longer term, this is inseparable from their strategy of laying out the sinking market.

Back to the beginning of 2023, when Xiaohongshu’s daily active users had just exceeded 100 million, the company set a strategy to achieve 140 million daily active users by the end of 2023. However, we all know the result. By the end of the year, the number had not exceeded 120 million, and it was not even halfway to the goal.

Therefore, Xiaohongshu, which has always promoted exquisite life, has set its sights on the sinking market, trying to achieve growth by impressing the "small town ladies" with stronger consumer demand, thereby promoting e-commerce business. Questmobile data shows that since 2022, the number of monthly active users in the sinking market has reached 692 million, accounting for 58.4% of all network users.

Also in 2023, the keywords throughout JD.com and even the entire e-commerce platform throughout the year are low price and sinking. Low price is the key to penetrating the sinking market, because although consumers in the sinking market are enthusiastic, they are also more sensitive to prices. This is also the top priority for JD.com's layout in the sinking market.

During this year, JD.com did see the benefits of embracing the sinking market. A war of words with Li Jiaqi made JD.com's procurement and sales live broadcast room a synonym for really low prices, with total sales of more than 350,000 and 140 million viewers.

This year, JD.com also adhered to the strategy of sinking into the lower-tier markets. In the 2024 New Year's greetings released on January 7, it clearly mentioned, "In the new year, we have clear strategic goals. The sinking market is still an important growth engine."

So , why do major Internet companies target the Spring Festival Gala if they want to conduct market penetration into the grassroots?

First of all, the Spring Festival Gala is undoubtedly one of the most powerful media landscapes in China. In 2015, WeChat tied with Alipay, the leader in mobile payment at the time, thanks to the Spring Festival Gala.

To put it more specifically, although the ratings and quality of the Spring Festival Gala are not as good as before, most of the audiences in the sinking market are still loyal viewers of the Spring Festival Gala.

According to Kuyun Digital Entertainment data, the ratings of North China, Northwest China, and Northeast China are firmly in the top three, while the more economically developed East China and Southeast China are not so interested in the Spring Festival Gala. In other words, the influence of the Spring Festival Gala on the audience in the sinking market is far greater than that of the audience in the first and second tier cities. Therefore, sinking through the Spring Festival Gala may be the biggest purpose of Xiaohongshu and JD.com to "spend money" on the Spring Festival Gala.

2. Brands sink, tea drinks take the lead

Compared with the Internet's use of various strategies to attract users in lower-tier markets, the path for physical brands to move lower-tier markets is often much more direct.

Let’s talk about Starbucks first. It was not in a hurry when Luckin Coffee overtook it, and it was also very calm when Coodi 8.8 launched a price war. Although the tracks are different, being in the same coffee circle makes people feel anxious. There was even a suspicion that it might be defeated in the Chinese market with its 30 yuan cup of coffee.

But in fact, Starbucks has quietly followed the trend of sinking, taking the route of high-quality sinking, that is, without lowering prices, it has begun to rapidly expand stores in sinking markets. According to data, Starbucks added 885 new stores in China last year, and entered 27 new cities, of which 74% were fifth-tier cities. As of this quarter, Starbucks has covered 857 of the 3,000 cities above the county level.

When Starbucks' upward space in Beijing, Shanghai and Guangzhou was squeezed by various boutique coffees, and its downward path was occupied by a few fast-food coffees, turning to the sinking market to sell expensive coffee became the best solution, because the social symbol value of Starbucks plays a greater role in the sinking market than in first- and second-tier cities. As Starbucks China CEO Wang Jingying said, "In the past few years, the profitability of our new stores in county-level markets has always been better than that in first-tier cities."

Starbucks is the typical representative of coffee, while Heytea and Nayuki Tea are representatives of high-end tea brands.

Heytea really started to sink in 2022. At the beginning of this year, Heytea lowered its prices by 1-10 yuan, with American and pure tea reaching single digits, and promised that the price of new products would not exceed 29 yuan. The price adjustment was to retain customers and pave the way for entering the sinking market.

In November of the same year, Heytea announced that it was officially opening up for franchising, which meant that Heytea had begun to fully enter the lower-tier markets. It was said that within 24 hours after the application portal was opened, it received more than 10,000 applications. However, there were many voices that were not optimistic at the time, fearing that opening up franchising would lead to quality control problems, that excessive penetration would damage the brand image, and that they would not be able to compete with Mixue Bingcheng...

But judging by the data, Heytea still maintains its leading edge in the overly involutionary tea beverage market, becoming the first tea beverage brand with a private domain user base exceeding 100 million. According to Heytea's 2023 Annual Report, as of the end of last year, Heytea's membership had exceeded 100 million, and the scale of Heytea stores increased by 280% year-on-year. This cannot be achieved by sticking to a high-end brand image.

Judging from Heytea’s recent New Year’s battle report, there is still a lot of room for development in the sinking market. The top ten cities in terms of store sales growth are all non-first-tier cities. Heytea store sales in Anyang, Henan, Huanggang, Hubei, Fuzhou, Jiangxi, Huainan, Anhui, Guang’an, Sichuan and other cities have increased by more than 200% month-on-month before the holiday.

However, not all high-end brands can achieve good results in the sinking market. Heytea’s old rival Nayuki Tea has repeatedly failed in the sinking market.

Nayuki's Tea announced the launch of franchising more than eight months later than Heytea. It was not until July last year that it began to open, and it only opened four stores in September. Before that, Nayuki had also been expanding its stores in lower-tier cities through direct sales, but the results were not very good. It had been unable to capture the lower-tier markets for a long time, and its low-priced sub-brand, Taigai, which was launched to cater to the lower-tier markets, has also closed down from more than 800 stores at its peak to only seven stores today.

Naixue's failure is not an isolated case. Lelecha, in which Naixue acquired 85.08% of the shares, was also unable to capture the lower-tier markets. It had no choice but to launch the 2.0 franchise model in November last year, which features a smaller area and less investment, hoping to continue to expand into lower-tier markets.

Compared with brands in other categories, tea beverage brands are actually easier to penetrate into the lower-tier markets because they have the lipstick effect and are more flexible to adjust, but they still face many concerns.

3. Diversification is more important in the sinking market

In fact, whether it is the sinking of Internet platforms or brands, they are all chasing the economic wave. As big cities become saturated, the vast sinking market has become a hot spot.

Going down to the lower-tier cities is just a means, and profit is the goal. For Internet platforms, marketing in the lower-tier cities is not just about attracting people, and for brands, it is not just about opening a store. Retention rate, conversion rate, and profitability are all important measurement indicators.

These platforms and brands often face two problems when they go downmarket:

One is to solve the problem of how to compete with competitors for new users. Just like Pinduoduo to JD.com, and Cudi to Starbucks, although it seems that the audiences are different and there are precise segmented groups, but now the cake of the segmented groups is not enough, so there is no way to avoid confrontation. At this time, we have to consider how to compete with "local users".

JD.com’s cards are price reduction and service, Starbucks’ cards are brand and space, and Heytea’s cards are price reduction and products.

When JD.com and Heytea were marketing in the lower-tier cities, they both chose to lower their prices based on their own advantages, focusing on differentiating themselves by leveraging their strengths and overcoming their weaknesses, which was a way to cater to the local market. Starbucks’s approach to lower-tier cities was completely different, betting on the brand power and the consumption capacity of the lower-tier cities. Its marketing in the lower-tier cities was also more reflected in soft culture, such as the joint launch of the “braised pork latte” with the Havoc in Heaven. Which one is better needs to be verified by the market and time.

Another thing is to think about how to balance new and old users, and whether it is necessary to change the image. For some brands, sinking will lose a part of the audience, because this part of people consumes the social value of the brand; the same is true for social platforms such as Xiaohongshu. When first-tier urban beauties find that this platform is not enough to reflect their own superiority, they may look for new communities.

Some brands are also looking for countermeasures, such as creating sub-brands and main brands to make a distinction, with sub-brands focusing on the sinking market, such as Xixiaocha and Taigai, but the effect is not very good. Internet platforms can segment algorithm recommendations to try to balance.

In general, sinking is the general trend in recent years and will be in the future. The sinking market can give birth to Tustin and Mixue Ice City, and can also accept Starbucks and Heytea. There is a vast world and great potential, which requires enterprises to verify it.

Author: Tiana

Source WeChat public account: Morketing (ID: Morketing)