All Roads Lead to China: Business News, Analysis, and Insights from China

Entering the Chinese mid-market segment: key to long-term success?, by Heiko Gebauer, Thomas Fischer and Elgar Fleisch, is an academic report that I found interesting lately while studying a 2nd tier market plan, and as a followup to a recent conversation about firms moving into the 2nd/ 3rd tier looking for growth.

As part of their report, the professors highlight 5 major missteps groups take when trying to assess or enter China’s middle market:

1. Managers use their existing customer segmentation and transfer it to the Chinese market.
2. Managers fail to continually update their understanding of the Chinese mid-market
3. Managers assume that because mid-market consumers can’t afford top quality merchandise therefore they will accept products and service that aren’t customized
4. Managers overestimate the willingness of mid-market customers to pay a premium for international brands over locally made equivalents.
5. Managers assume that mid-market growth is concentrated in the first and second tier cities such as Beijing, Shanghai and Xian and that the third and fourth tier cities are restricted to the low-end market and do not experience accelerated market growth

Key factors for formulating the product strategy appear to be up-to-date market analysis, early market entry and moderate prices.

• Setting up separate organizational units targeting the mid-market is the key factor for implementing the product strategy.
• Localizing research and development, and adjusting manufacturing processes seem to present both major challenges and the key to success for the separate organizational unit.
• Only if domestic companies have already achieved reliable and constant product and service quality should they undertake the adventure towards the mid-market segment.
• A market entry that is too early and too ambitious can put the company at risk.

The report, while brief (email me for a copy), highlights some critical factors that firms should certainly consider ( there are certainly others that are firm/ industry/ product specific), but on a larger level where I liked this study/ report was that it had the potential to open smart dialogue.