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 county-level 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 well-known 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.

(China Daily May 18, 2009)