PC makers embark on a rural journey

By Wang Xing and Zhang Qi (China Daily) Updated: 2009-05-18 08:07

Huang Dejun, a farmer in Zaozhuang, Shandong province, smiles after attending a computer course.[China Daily]

China's rural populace had never been taken seriously by the technology firms. But it is the same rural populace that is now offering hope for computer makers as sales in the urban markets have declined due to the global financial crisis. The government's decision to offer a 13 percent subsidy for rural consumers to buy home appliances, has recently been extended to computers also. Chinese farmers have shown an unprecedented enthusiasm for computers, opening up new vistas for PC makers beset by flat and stagnant PC sales in urban markets. Zhai Jianshe, a 48-year-old farmer from Wuji county, Hebei province, had charted plans to buy a computer last November when his son got married, but gave up the idea as prices were too high at that time. Last month, soon after the government extended the subsidy to computer buyers, he bought a Lenovo desktop from a local dealer so that he could get connected and check local market information for his produce. "I sold my corn at 0.64 yuan (per 500 g) a few months ago but now the price has risen to 0.7 (1 cent) yuan," Zhai said. "And now I can check market information through my PC and also choose the best time to sell products." According to the National Bureau of Statistics, China had 727.5 million rural residents last year. But their annual average net income was only 4,761 yuan. The low income had greatly limited rural consumers' capability to purchase computers, as even the cheapest products would cost nearly half their annual incomes. However, computer makers believe that rural consumes are ready to buy the products that they had till now regarded as a useless luxury as it not only fulfils their unique demand but also helps them earn more money. China's huge number of migrant workers, who account for nearly 2.6 percent of the Internet users, are also helping fuel the PC demand. "Computers for rural consumers must be different from those sold in urban areas as the demands are diversified," said Chi Hai, product manager, Lenovo. "According to our research, entertainment, children's

education and agriculture information are the major reasons that rural consumers would buy a computer. So we have developed three different product lines to meet these demands." In order to lure rural consumers, Lenovo has partnered with telephone operator China Telecom to provide a one-year service of streaming online movies and soap operas for free for its users. The company has also joined hands with domestic online education service providers to provide free online courses for children via its products. It has even teamed up with China's Ministry of Agriculture, to enable access for Lenovo users to the government's database to check agricultural data and local market information for free. Chi said Lenovo's rural products save power to the extent of 30 to 50 percent and have also been specially designed to withstand voltage fluctuations and the humid environment. The company expects rural buyers to account for 30 percent of its desktop sales and 5 to 10 percent of its laptop sales in China this year, said Liu Jie, vice-president, Lenovo. Distribution network However, developing proper products for rural consumers alone is not enough to guarantee a success for PC makers. China's rural population is widely scattered, hence establishing a nationwide distribution network and after-sale service network is vital for a robust PC market. Domestic home appliance maker Haier said earlier this year that it plans to set up 10,000 sales outlets and 5,000 service depots in rural areas. Lenovo also announced this month that it plans to establish 700 countylevel stores and 7,800 sales and service outlets over the next three years. "Our plan is to make sure that rural consumers in China can reach our sales people within an hour," said Liu from Lenovo, adding that the company plans to hire sales staff in over 320,000 villages across the country. Companies like Hewlett Packard, Dell and other domestic PC vendors have also announced their plans to build more outlets in China's rural areas. However, building up a national network that covers most of the rural areas could prove to be costly. As rural consumers have lower purchasing power and often lack basic computer knowledge, it would be difficult for computer makers to get favorable returns on investment in these areas. HP, for example, has long been limited its distribution network in China's eastern coastal regions, where farmers have better revenue than their peers in western areas. Last month, the company launched a program that aims to establish 100 computer centers in western rural areas, a wary step to expand into rural inland China. Isaiah Cheung, general manager of HP's computer business in China, said he hopes the revenue from small and remote areas could account for 40 percent of HP's business in China after the harvest plan in the next three years. Liu Jie from Lenovo said as long as the distribution network is well organized, it would bring in revenue continuously. He said the company has signed contracts with local distribution partners and would continuously check their performances. "Our aggressive expansion in rural areas will not put much pressure on our profit margins," he said. Rural marketing

Compared with developing products and establishing distribution network, marketing in rural areas is also an art that the major computer makers are not familiar with. Different from their urban peers, consumers in rural areas are more easily influenced by promotional events and almost always buy the same products as their neighbors and friends. Many rural consumers also choose to buy a computer as a part of the "must-have" appliances when a new couple gets married, forcing many PC vendors to change their product colors from traditional black to red, an auspicious color in Chinese culture. Since 2006, Lenovo has been conducting an annual campaign titled "Lenovo Olympic Activities in 1,000 Counties" to reach out to rural consumers. As part of this campaign, the company has invited many wellknown Chinese athletes to participate in county tournaments. HP has also joined forces with China Telecom to offer a "Computer + Broadband" service in areas like Taizhou and Nantong of Jiangsu Province, where users are being offered an HP Compaq desktop computer free of charge when they sign up with China Telecom's Broadband access and pay 198 yuan per month for 27 months for the Broadband Internet access. Jiang Dekun, marketing director of Lenovo's consumer business group, said the company has started to adopt more localized tactics such as painting the Lenovo logo on village walls and advertising and promotion events in village broadcast stations and local fairs. She said Lenovo has even signed several contracts with village heads to help organize promotional events in local communities. "Compared with our traditional marketing campaign, these tactics are much more inexpensive but very effective for rural consumers, as they are more close to their daily lives," said Jiang. She said Lenovo has also shifted most of its rural advertising spending since last year from mass media to over 300 county-level television stations. Questions: 1. What different marketing strategies are HP and Lenovo using in rural areas from what they do in the cities? 2. How must the product itself be different for rural customers? 3. What are the distribution/logistics problems HP and Lenovo face in selling in rural areas? 4. Describe their distribution networks in rural areas. 5. What is the upside (potential benefit) for HP and Lenovo if they can work out these problems?

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