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Granular understanding of opportunities in China marketplace spurs growth

Retail expansion based on micromarket segmentation increases market share 5 percent in 12 months.

Challenge

This large hardware manufacturer was interested in defining profitable opportunities to grow its presence and market share in China. It turned to McKinsey to help identify where and how it could best compete, given the complexity of China's consumer segments.

Discovery

A successful strategy hinged on accurately identifying and prioritizing market opportunities on a granular level. The McKinsey team began building the strategy by grouping 800-plus cities into 25 clusters using a proprietary McKinsey consumer database, industry profiles, and government policy to define each market. This microsegmentation allowed the company and McKinsey team to clarify which markets would warrant further investment and sales attention. Identifying the right geographic micromarkets to target across China was a key priority given the inconsistent maturation of China and China’s infrastructure. The analytics developed by McKinsey synthesized market potential and development trends such as income, mobility, education, and infrastructure.

An additional key to success for each market was identifying exact retail locations and store formats suited to serve consumers in each high-priority cluster. This level of granularity in the market strategy ensured adequate coverage and consumer convenience, as well as providing the means to quantify the return on investment for each retail outlet. The team next designed a tailored go-to-market model for each cluster, defining key levers and developing a customized approach for each dealer category, including pure retailers and value-added distributors.

The McKinsey team supported execution of the strategy and implementation of the model for several months—launching and monitoring pilots, supporting capability building throughout the sales channels, and crafting specific initiatives for dealers and retail outlets to help the company meet the sales projections estimated.

Impact

This granular approach to understanding and growing the company’s business in China paid off handsomely for this manufacturer. The company:

  • improved its market position significantly, moving from a top-five player to number two
  • increased market share by 5 percent over a 12-month period (one year earlier than forecast), capturing share from target competitors
  • expanded its retail presence, store operations, dealership network and visibility in promising markets

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