Coke targets second cities

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Marketers at first focused on China's Big Three cities-Beijing, Guangzhou and Shanghai-but these days, China's growth engine depends on second- and third-tier cities such as Chongqing, China's capital before the 1949 Communist revolution.

Coca-Cola Co., for example, entered China 25 years ago. Since then, China has grown into Coke's sixth-largest global market in volume and it ranks third in incremental volume growth, after the U.S. and Mexico. Coke expects mainland China to become its third-largest operation within five years.

"Our aspiration is to approach [the market strength Coke has in] the U.S., but it's a long journey," said John Cheung, Coke's marketing director-greater China, Shanghai. Per capita consumption of Coke products in the U.S. stands at more than 400 units a year. In China, the average is just 10.

slicing the pie

"You can cut China many different ways," said Mr. Cheung, who divides the country into five tiers. At the top he places Shanghai and Beijing, sophisticated "natural markets" where consumers act like those in developed countries. After that lies "urban one" with 27 major provincial cities such as Chongqing and Chengdu, the capital of Sichuan Province; "urban two," with about 2,000 smaller cities; 50,000 towns; and China's rural outskirts.

The top four tiers account for about 70% of China's population and nearly 100% of the U.S. beverage marketer's current sales in China. In the past, Coke relied on one campaign for all of China, "but consumers in each are different and our business development differs in each," said Mr. Cheung.

Starting this year, Coke is creating different ads for each market segment. For "urban two" cities and smaller towns, for example, it created a TV spot featuring a famous Chinese actor traveling in the countryside on a hot bus. The ad stresses Coke's refreshing taste and the bottle's critical 1 Renminbi (12ยข) price point.

For China's top-tier markets, Coke created a spot that is slick enough to run in any developed market. It features a hip Taiwanese VJ from Channel [V], Star TV's music channel, who shows off his dance moves as he pretends his Coke can magnetically draws him to an attractive lady across the street.

"The ad is aimed at young adults who want to do things their way, as opposed to following a famous actor as in the bus spot," said Mr. Cheung. Both ads were created by Interpublic Group of Cos.' McCann Erickson, Shanghai.

Managing growth also requires new products, namely teas, water and juice brands. Nestea was introduced last year and Minute Maid in April 2004. Last year, China overtook Japan as Coke's largest market for another juice brand, Qoo.

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