Consumer goods giant Procter and Gamble (P&G) has taken aim at increasing its reach in China as multinationals look to the Chinese countryside as the next engine of growth.

According to a survey conducted by China Daily in October 2011, more than 87% of the multinational executives said expansion in smaller Chinese cities and rural areas was ‘very urgent’ or ‘important’ to their businesses.

P&G announced that it would leverage smaller portion sizes and green positioning to expand its reach from one billion (seven in ten Chinese currently buy P&G products) consumers to the 400 million who do not currently buy P&G.

“Although China is already a mature market for P&G, it will be one of the biggest sources of our new customers in the future,” Christopher Hassall, its global external relations officer, told China Daily.

“There are many opportunities for P&G to drive its brands deeper into China’s rural areas,” Hassall said. “We’ve expanded our reach by working with the distributors and sub-distributors to widen distribution in rural and remote areas.”

The company is looking at green innovation as the environmental movement begins to take root in China following the government’s commitment to reduce energy usage.

“It’s very important that a product uses less energy, less packaging, less material – which is sustainable – but the consumers do not end up with a decrease in the performance of the product,” said Hassall.

However, while moving into ‘second tier source markets’ holds great potential, it comes with a new set of rules which challenge the fundamentals of consumer marketing as taught in developed markets, according to James Fergusson, managing director of research agency TNS’ global technology sector.

“Consumer needs and preferences are often different, as is the relative influencing power of various media and contact points,” Fergusson said.

“Advertising has to be more functional, actually demonstrating the product’s features and benefits, and distribution strategies are far more challenging, relying more on the traditional trade or mum and dad stores.”

Yet Fergusson says it’s worth noting that “whilst more isolated than their top-tier counterparts, people in smaller cities and rural areas still crave new things and once exposed to innovations become avid users of new products and technology.”

Analysis from TNS lists a number of issues to think about for brands venturing into emerging markets:

• Ensure sustainability: products must have long-lasting durability as it is more difficult to frequently change or replace them due to affordability issues,
• process innovation: start from the lowest common denominator, understand and define the fundamental gaps and opportunities, refine the offer to take advantage of these,
• adapt functionality to suit different living conditions, such as no running water or minimal electricity,
• think about ways to educate consumers: functional advertising and direct selling are essential,
• distribution innovation: understand infrastructural and logistical constraints; for example, 60% of Kenyans live more than 5km from a sealed road, and
• ensure price performance: provide great quality at affordable prices, potentially achieved by smaller units or packs.