In 2019, Pinduoduo's successful listing made more brand giants realize the huge blue ocean that they once ignored - the " sinking market ". Many brands such as Haidilao, Nayuki, Heytea, and Meituan are also eyeing the sinking market.

It is not only the first-tier brands that are accelerating the layout of offline stores. New leading players such as Xiaopeng, Ideal, WM Motor, and NIO have also been stepping up the layout of their own offline channels in recent times, and are also expanding from the original first- and second-tier cities to third- and fourth-tier cities.

Why are brands scrambling to grab market share in the lower-tier markets? How should brands correctly enter the sinking market?

01. What is the sinking market?

In 2018, as Pinduoduo rang the bell for its IPO on the Nasdaq in the United States, the term "sinking market" jumped into the public eye and quickly became popular.

Shi Yuzhu once said: "China's population distribution is in the shape of a pyramid, with Beijing, Shanghai and Guangzhou being the real top of the pyramid. In these three cities, the vast majority of brands cannot make money, or even lose money, and the main reason is that the cost is too high. However, the cities at the bottom of the pyramid make more money, because the cost is lower in the lower cities."

The city below the pyramid mentioned here is the so-called "sinking market" that people often see.

The so-called "sinking market" refers to the markets in third-tier and lower-tier cities, counties, towns and rural areas.

According to data from the National Bureau of Statistics, the population of third- and fourth-tier cities and below accounts for as much as 77.55%. The huge population base naturally corresponds to an equally huge market potential. Therefore, in order to achieve huge growth in traffic, some brands have shifted their customer acquisition targets from the previous first- and second-tier users to users in third- and fourth-tier cities, and even in rural areas.

Gu Ming Milk Tea was founded in 2010 in Daxi Town, Wenling City, Taizhou, Zhejiang Province. It only focuses on the small town market. Now it has more than 1,600 stores and a turnover of over ten billion.

Whether it is Pinduoduo or Gu Ming Milk Tea, the success of these brands has shocked the merchants who have always focused on first- and second-tier cities and fought hard. In the past, we always believed that first- and second-tier cities have large populations, strong consumption power, developed logistics systems, and complete supporting facilities. First- and second-tier cities should be the core and only stronghold of every brand.

However, few people know that the rural population in my country has always accounted for the majority. With the development of the economy and the construction of new countryside, today's rural areas are no longer the past scenes of mud walls and earthen houses with livestock running all over the ground.

Today's rural areas are home to neatly planned new houses, small parks and small supermarkets. The town is no longer just a wholesale and retail store and a restaurant as it used to be, but now has a decent supermarket, even a small shopping mall, a cinema, a cafe, etc.

It is an indisputable fact that the sinking market is a gold mine.

02. Why choose the sinking market?

As customer acquisition costs continue to rise and the traffic dividends in first- and second-tier cities have basically disappeared, the long-ignored "downstream market" has become a new business engine.

For many years, the sinking market has been a paradise for inferior products. Relying on price advantages, it has built a deep moat to keep brand-name products out. However, the end result is often disorderly price competition among inferior products, which prevents these inferior brands from making more money. At the same time, the best opportunity for transformation has been lost.

Nowadays, with the improvement of brand consumption awareness in the overall sinking market, and also in order to increase growth, more and more first-line brands are beginning to capture the sinking market.

The reasons why brands choose to sink are mainly divided into the following two aspects:

On the one hand, for big brands, the market in first-tier cities has been divided up, and they must find new markets.

As the number of Internet users in first- and second-tier cities approaches saturation, the traffic dividend has peaked. In order to find new growth points, more and more brands are beginning to move to lower-tier cities.

Take Nayuki and Heytea as examples.

Today, the competition in new tea drinks has already entered the second half. For leading players such as Heytea and Nayuki, how to consolidate their position in the fierce market competition and continue to find new growth has become the top priority in 2020.

In the past six months, Heytea and Nayuki, two new tea beverage companies, have frequently been reported to have raised funds, gone public, and launched sub-brands.

While regional "powers" such as Cha Yan Yue Se were planning to break out, Heytea and Nayuki collectively chose to accelerate their expansion to lower-tier cities, looking for new incremental battlefields, opening stores directly in third- and fourth-tier cities, searching for new incremental space, and engaging in a head-on battle with regional brands.

It is reported that the number of stores opened by Heytea, Nayuki, and Starbucks in third-tier and lower cities has exceeded that of second-tier cities and is approaching that of first-tier cities.

Therefore, when the existing markets in the first- and second-tier cities reach their peak, Heytea and Nayuki must look for new incremental markets and continue to "tell stories" to capital with beautiful market data.

On the other hand, with the development of the economy, the grassroots consumption level has gradually increased, consumption concepts are also changing, and the sinking market also has huge market space.

With the return of population, the mature consumption concepts cultivated in life in first- and second-tier cities have been able to spread to the sinking market, and other users' awareness of consumption upgrades has begun to awaken. In addition, with the continuous growth of people's income, the development of the sinking market has accelerated, becoming a new blue ocean for traffic growth.

According to public data from Analysys Qianfan, the average number of mobile devices per capita in third-tier and lower cities is only 0.49, and the consumption potential of the sinking market cannot be underestimated.

The rapid rise of Pinduoduo and Kuaishou is undoubtedly the best proof, and the vigorous sinking strategy of Tmall and JD.com has also proved the fact that market sinking can harvest huge traffic.

03. How can brands enter the sinking market?

Regarding the "sinking market", the consumer goods market was mentioned the most and discussed the most. Everyone was cheering that it was a blue ocean market, an undeveloped virgin land, and a huge "gold mine."

However, despite many people talking and cheering, no leading brand specializing in the sinking market has emerged.

So, how can brands market effectively in the sinking market?

1. Have a keen insight into the market and fully understand consumer psychology

Consumer insights are the premise of all marketing activities. If a brand wants to expand into lower-tier markets, it must first understand consumer needs and preferences.

Due to differences in living environment, etc., there are huge differences in consumption preferences between consumers in third-tier and lower cities and those in first- and second-tier cities. If we simply use our understanding of the needs of the head market to create marketing materials for the sinking market, how can we impress them? Therefore, consumer insights in lower-tier markets are crucial.

In fact, there is still a gap in consumption levels between third- and fourth-tier cities and first-tier cities. Moreover, compared with first-tier cities, consumers in third- and fourth-tier cities are more sensitive to prices and pursue cost-effectiveness. Therefore, only "good quality and low price" can win the favor of the sinking market.

Take Pinduoduo as an example. Its success is due to its grasp of the market demand of this group who pursue low prices and high cost-effectiveness. Just by starting with the most attractive "price", it can attract a large number of consumers and firmly grasp the attention of consumers.

2. Shape content IP and create more competitive products

“Content is king” will never go out of style. For a brand, good content is the cornerstone.

For example, the content positioning of Qutoutiao is very clear, focusing on general entertainment and light reading content. Judging from its rapidly growing number of users, its positioning is obviously successful.

According to statistics, in recent years the actual year-on-year growth rate of per capita disposable income of rural residents has been significantly higher than that of urban residents. Correspondingly, the actual year-on-year growth rate of per capita consumption expenditure of rural residents has also been higher than that of urban residents.

That means that the opportunity in the sinking market lies in the fact that people will shift from family consumption trends to personal consumption trends, and then branded and high-end products will be more valuable and competitive.

3. Seize the influence of the first batch of users and formulate reasonable marketing strategies

A typical feature of the sinking market is recommendations from acquaintances.

Unlike first- and second-tier cities, third- and fourth-tier cities have a low population base and a small and fixed consumer circle. Therefore, most brands here are competing for the existing market, which can even be said to be a "favor market," so the repurchase rate is an extremely important indicator.

Therefore, before economies of scale are achieved, the influence of the first batch of users is crucial.

4. Do a good job of "localization" and find the right fit between brand and market

If there is no universal value that can meet the needs of all markets, satisfying everyone will be a big challenge, because what the sinking market considers good may not necessarily be good in first- and second-tier cities.

Consumers are diverse, so the sinking market is not "one" market, but "multiple" markets. Perhaps, market A recognizes the service, and market B recognizes the product. It is impossible for a brand to perfectly adapt to every user.

Therefore, in the expansion of the sinking market, brands must find the point of fit between this market and the brand, and then work hard to develop this point in depth.

04. Conclusion

There is no unconquerable market, only giants who are unwilling to turn around.

Today, the sinking market is still a lucrative outlet and a new blue ocean market for brands to focus on. As long as it is used properly, the brand will definitely achieve something. In the future, the mobile Internet will grow new dimensions in the sinking market.

However, brands must also have the ability to adapt to changing circumstances in the sinking market, do a good job of "localization", and find the most appropriate entry point. At the same time, they must do a good job of brand positioning, content positioning, and formulate reasonable marketing strategies to maximize the brand's success rate in the new market.

Author: Brand Front Page

Source: Brand front page (ceozhiku)