Let’s talk demographics

By Li Xuanmin Source:Global Times Published: 2018/5/23 17:18:39

Internet service apps see untapped market in lower-tier cities


A view of a coastal village in Putian, East China's Fujian Province Photo: Li Xuanmin/GT



The daily life of Tu Ruihua, a 50-something retired grandma in Lichuan county, East China's Jiangxi Province, has been chock-full of all kinds of housework, babysitting and grocery shopping from 6:00 in the morning when she wakes up to 10:30 in the evening when she goes to bed.

Playing with her smartphone is one of the few daily activities that keep her amused.

Three years ago, her daughter helped her download an e-commerce application named Pinduoduo on her mobile phone, and since then, she has become addicted, spending about one to two hours each day on the app.

Tu has little idea of how to navigate through other types of apps on her phone, but she knows by heart how to use Pinduoduo to snap up deals that are way cheaper than the market price.

"Last time, I bought 15 jin [7.5 kilograms] of rice for just 14.9 yuan [$2.34] using Pinduoduo's group-buying bargains. That compares with the price of 26 yuan per jin in the supermarket," she told the Global Times over the weekend.

The most attractive thing about Pinduoduo is that it enables users like Tu to invite friends and relatives through social media platforms to take part in the purchases so as to access more discounts.

In addition to rice, Tu buys almost everything from the app, ranging from clothes, like jeans and shoes, to daily necessities, like bathroom tissues and bed sheets.

"The prices there are cheaper and more cost-effective… I haven't spent more than 80 yuan on a single item sold on the app so far," she said, adding that products on Taobao, the online e-commerce platform of Chinese tech giant Alibaba, are "a little bit expensive."

Tu now spends more than 1,000 yuan every month during her daily Groupon-style shopping sprees.

In her eyes, shopping on the app is no different than shopping in the mall. But she says online shopping is "more thrilling" because she can buy whatever she wants, as goods on Pinduoduo are usually heavily discounted and sometimes even free.

To attract more customers, Pinduoduo offers cash back incentives, generally a few cents each time Tu shares her purchases on social media platforms like WeChat.

In addition, Pinduoduo's advertising spending on popular TV shows - like Top Funny Comedian and Go Fighting! - has also increased its popularity in those cities.

The application, which is developed by Shanghai-based Xunmeng Information Technology, is a perfect example of how China's internet start-ups have tailored their services to a historically overlooked group: residents in lower-tier cities where people have smaller incomes and where the internet penetration rate is lower.

Pinduoduo refused to disclose its user demographics when contacted by the Global Times.

However, its chief financial officer Wu Shenyi said in an interview with the Wall Street Journal in March that the start-up "serves the demographics not reached by Taobao" who are older, have lower incomes and live in smaller cities.

The story of Qutoutiao

News app Qutoutiao, which provides cash back incentives to users who register, read news, invite friends and share news via the platform, is another internet start-up that has steered China's internet drive into third- and fourth-tier cities.

The app, established by Shanghai Jifen Culture Communication in 2016, made it clear from the very start that residents in third- or fourth-tier cities are their main source of growth.

At present, about 80 percent of its 80 million registered users are located in smaller cities, most of whom are also newcomers to the internet services industry, news website sina.com reported in May.

A 48-year-old housewife surnamed Wang living in the coastal village of Putian, East China's Fujian Province, is among one of the many loyal users of Qutoutiao.

"Last year, I accidently learned from my relatives that I can earn money from simply viewing news. I was quite excited at that time," Wang recalled.

Since then, Wang has downloaded the app, checking in every day and browsing thousands of articles and videos recommended on its home page.

In addition to Qutoutiao, Wang also downloaded similar news app Dongfangtoutiao in January, which allows her to double her extra income.

The hours after lunch and dinner as well as the hour before she sleeps are now her "untouchable" hours, when she views news via the two platforms, Wang told the Global Times over the weekend. 

Wang's efforts have paid off. She now brings in about 50 yuan every month in extra income, which she thinks is a great deal and can be used to "buy snacks."

Meanwhile, her WeChat moments have become overwhelmed with invitation links to those apps.

"If my WeChat friends follow the link to download those news apps, I can also get money as a reward," she explained.

Capitalization

Last year, the growth of China's internet industry slowed down to about 6 percent, half of 2016's 12 percent growth rate, according to data from the China Internet Network Information Center.

Industry insiders have agreed that citizens and younger generations in first- and second-tier cities were the earliest to embrace internet services.

"For the past five years, internet start-ups have been trying all kinds of strategies to attract users from, and tap markets in, first- and second-tier cities, but recently, demographic dividends have started to vanish," Liu Dingding, an independent industry analyst, told the Global Times on Tuesday.

However, there is still a sizeable potential market in smaller cities, whose consumers "are price-sensitive, less brand-conscious and have a lot of free time that they are willing to spend in exchange for small cash rebates," said Liu.

"China is talking about consumption upgrades, yet to capitalize on markets in smaller cities, internet start-ups have had to adopt the strategy of consumption degrading," Liu explained.

But the new target group is currently showing great potential, as illustrated by the immediate success of apps including Pinduoduo and Qutoutiao that specifically target that demographic.

For example, Pinduoduo is now one of the fastest growing companies in China, with registered users expanding to more than 200 million within the two and a half years after it was founded.

An industry insider told the Global Times that the platform's daily orders have already exceeded that of Chinese e-commerce giant JD.com Inc.

However, Liu warned that as more internet start-ups flood into smaller cities, the market could "hit a wall" at the end of 2018.

"These internet firms need to figure out how to transform in response to China's ever-changing demographics," he suggested.



Posted in: INSIGHT,BIZ FOCUS

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