Chinese e-commerce: Debunk the mystery of Alibaba and more

China-e-commerce
China-e-commerce

 

There are thousands of e-commerce sites in the Chinese market, where literally almost anything can be bought online. So which ones have made the biggest impact on China’s online shopping space and how to choose the right e-commerce platform?

We have summarized the following information for New Zealand companies which we think you should take away. Read on!

 

1. eCommerce and Go Mobile

It is not difficult to understand why should sell your products online in China. China is the world’s second largest and fastest growing economy and continues to demonstrate exceptional year on year eCommerce growth, firmly placing China as the largest eCommerce market in the world providing huge opportunities for any online retailer.

eCommerce is the clear growth story. Economic Quarterly Q1 2017, the Chinese national online retail sales of goods and services reached 1.4 trillion yuan (0.3 trillion NZD) in the first quarter, 32.1% higher than a year ago. In comparison, retail sales of the physical stores went up by 7.2% only.

china-customer-expectation
Chinese customer go mobile

China is going through major technological developments including growing internet penetration rates, social media advances and fast developing marketplaces which are all contributing to this growth. With a growing middle class and the rapid increase in mobile internet penetration, China is a lucrative market. With 753m mobile internet users and 97.5% smartphone penetration, mobile has been described as a significant contributor to growth.

But, China today, is characterized by mobile-first consumer behavior, vibrant social commerce adoption, and a ubiquitous digital payments infrastructure. In addition, the market is fiercely competitive. Local and international brands compete for consumer’s attention and wallet share, the internet giants race to build broad digital ecosystems to strengthen their existing network effects, and well-funded start-ups redefine customer experience. Only the most innovative survive in this dynamic retail environment.

 

2. New Retail and Big Data

All the technology companies include mobile brands Xiao Mi are fighting for the marketplace in New Retail. What is New Retail?

Alibaba's new retail strategy
Alibaba’s new retail strategy

Alibaba Founder and Chairman Jack Ma coined the term “New Retail” in a letter to Alibaba’s shareholders in October 2016. Ma said, “Pure e-commerce will be reduced to a traditional business and replaced by the concept of New Retail―the integration of online, offline, logistics and data across a single value chain.” We believe that this is very much how next-generation commerce will look globally, with large retailers and niche category specialists leveraging technology to provide an integrated service to the consumer at its core.

The increasing maturity of businesses in using data analytics and omnichannel technologies to create a seamless consumer journey between online and offline channels. One big change has been the development of a mature data management and digital marketing ecosystem around Alibaba, JD, and Tencent. The emergence of demand-side (DSP) and supply-side (SSP) platforms, and master data management has now enabled merchants to perform the advanced customer profiling, precision marketing, and content personalization that many would recognize in the West.

Nestle partnered with Alibaba to personalize the content on their Nestle Tmall store based on data models which analyzed consumers historical and real-time transactions, browsing behavior and social graph. As a result, different sets of consumers were shown coffee, dairy or snack products with personalized greetings and recommendations.

Unilever, Mars, Hershey’s and Metro are other companies that have partnered with Alibaba to leverage similar data-driven marketing solutions.

Apart from marketing, many retailers and consumer packaged goods companies are using big data analytics to improve product development, merchandising strategy, and physical footprint. Quaker collaborated with JD.com to identify an underserved market segment and develop a high-fiber oats drink specifically for the China market.

Likewise, NIVEA has a similar partnership in which JD evaluates consumer skin care product sales trends in near real-time and in-return NIVEA provides JD with access to new products when they are launched globally.

In another example, Haier used data from Alibaba (which included customer support, product rating, and comments) to reverse-engineer its product development and manufacturing process.

 

3. Chinese eCommerce = Google+Netflix+Instagram+Facebook+……

Many international retailers and brands, particularly new entrants, often make the mistake of assuming Tmall is just China’s Amazon. This comparison is both inaccurate and unhelpful.

Tmall plays the role as to Google products. The research shows that 61% of Chinese consumers start their product search journey on Tmall, while only 39% of global consumers use Amazon for the same. It is better for brands to acknowledge Tmall as a search and discovery engine as much as it is an eCommerce platform. Recognising that Tmall is about content and commerce is imperative for success in China’s retail sector.

11.11 Singles day COUNTDOWN GALA
Tmall Single’s day countdown gala

In 2016, Alibaba shifted from a transaction drive marketplace model to one that was more focused on enabling merchants to create richer consumer experiences. The Tmall and Taobao shopping environment now incorporates videos, live streaming, virtual reality, games and competitions, communities, and key opinion leaders (KOLs)- entertainment as much it is eCommerce.

Macy’s created a virtual reality shopping environment that allowed Chinese consumers to stroll through the retailer’s famed New York flagship store and purchase products via Tmall Global’s cross-border eCommerce platform.

In another example of entertainment-driven eCommerce, Tmall live-streamed an 8-hour fashion show during Singles Day which featured over 800 models wearing clothes from brands such as Ted Baker, Zara, and Gap.

Retailers and brands are differentiating through experience. For example, XiaoHongShu is a cross-border eCommerce fashion retailer that sets itself apart by providing shoppers with fashion inspiration through user-generated content and a vibrant social community.

 

 4. The blurred boundaries between eCommerce and social platforms

If the internet means mobile, then WeChat is the de facto mobile platform. With over 800 million monthly active users, it is almost a proxy for mobile internet penetration in China. As with eCommerce, where third-party platforms dominate, retailers and brands have come to recognize that capturing consumer’s attention typically means operating within the WeChat environment, versus building a direct-to-consumer mobile app.

WeChat Launches Clothing Range With GAP
WeChat Launches Clothing Range with GAP

Many retailers, including Coach, Estee Lauder, and Gap, have embedded their loyalty programmes within the WeChat app and now run customer relationship management and engagement through the platform itself. This is an effective strategy. The data shows 41 % of Chinese consumers use social platforms as a way to receive promotional offers.

For example, Max Factor developed a new social customer relationship management programme on the WeChat platform. The company bridged online and offline data to build a detailed customer database with 36 categories of tags. Max Factor can now use real-time data to send personalized messages via the WeChat platform based on different stages of the customer lifecycle.

A strategic partnership between JD.com(a leading B2C eCommerce platform) and Tencent (the parent company of WeChat) in 2014 made JD the exclusive shopping channel within the WeChat mobile wallet.

WeChat has become a significant source for JD’s customer acquisition, during Singles Day in 2015, 52% of first-time Jd’s users came via the WeChat platform. What is also significant is that the majority of these users came from lower-tier cities and rural areas. Of the 200 million new online shoppers set to be connected by 2020, 71% are forecasted to be based in lower-tier cities. Moreover, they are most likely to be mobile-only users. Therefore, mobile and social engagement is critical to not just gather the attention of consumers today but to also capture the next wave of China’s consumer base.

Live streaming is emerging as a major growth avenue for mobile and social engagement in China. Highly recommend New Zealand companies use this marketing method.  Live streaming platforms like Bilibili, Ingkee, and YY have built vibrant content-driven ecosystems of self-expression.

Live streaming works best when brands use the real-time, interactive and human nature of the media. For instance, to promote the ZX Flux shoes, which can be customized, Adidas live streamed a graffiti artist who changed his design and patterns according to the requests of people watching live.

In another example, an international supermarket used live streaming as a mechanism to educate Chinese consumers on the benefits of imported food products. The social campaign involved sending celebrities to iconic destinations in Europe which doubled as the source of origin for promoted products.

In this way, live streaming created engaging content which showcased quality, provenance and health-related benefits.

Beyond campaigns, some retailers are now putting live-streaming at the core of the eCommerce experience, a strategy often described as “see now, buy now”. Mogujie.com, a fashion-focused social commerce platform with over 130 million registered users, enables consumers to buy products directly from within a live stream environment that uses online celebrities to model items, provide fashion recommendations and answer questions.

 

5. Social engagement with Chinese consumers is the key

The retail opportunity in China is as lucrative as it is challenging. For most categories, the market is hypercompetitive with both local and international players competing for market share. In a highly crowded market, differentiation is the key to success. For a brand to stand out, they first need to be at where their consumers are, and in China that means social.

In most markets, businesses have come to recognize the importance of social platforms but what differentiates the Chinese consumer is how social media has permeated the end-to-end consumer journey.

In China, consumers use social media to discover new brands and products, validate the product quality through reviews, comments, and feedback, purchase directly through a social channel, and then write a review of the products or experience. Therefore, it is critical for retailers and brands to build and participate in special communities and engage with customers on social platforms across the end-to-end journey.

Social function of Taobao
The social function of Taobao

Alibaba has developed a range of tools to drive greater social engagement with their eCommerce platforms. These include Quanzi, where users can create special interest groups to generate content, discuss products and share recommendations, and Wendajia, which uses big data to identify community members who are best placed to answers customer queries. The key to effective social engagement in China is delighting consumers in the moments that matter.

Local brands in China are often more digitally-literate than international counterparts, particularly when targeting millennials. One example is Three Squirrels. Launched in 2012 as a pure-play digital brand, it has become the largest snack brand on Chinese eCommerce with sales of RMB 2.5 billion (0.6 billion NZD) in 2015.

Three Squirrels has created an end-to-end branded experience which is designed to create a wow factor at key “moments of truth”. The website is playful and interactive featuring cute squirrel mascots who also feature as customer service representatives known as “masters”.

When the product is shipped it comes with personalized messaging and complimentary gifts including napkins, shell openers, and trash bags. While Three Squirrels does spend on paid advertising, it is increasingly shifting to branded content and is working on a cartoon series to be aired on TV.

Retailers and brands need to become more sophisticated with how they engage on social media in China. Shoppers have integrated social deeply into their consumer journey and navigate between social platforms almost instantaneously. Traditional media buys are an ineffective mechanism to capture the attention of these consumers. What is needed is more creative, brand-led, engagement models that capture distinctive moments of delight throughout the social commerce journey.

 

6. Key opinion leaders as a sales channel

It is almost impossible to distinguish between eCommerce and social media in China today. This is clearly evident in the developing landscape of key opinion leaders.

“Wang Hongs”, internet famous became a distinctive new segment of social entrepreneurs are impacting the retail landscape in China. They are the internet celebrities that monetize their personal brand and follower base by selling products, mostly fashion and cosmetics, over eCommerce platforms such as WeChat and Taobao as well as dedicated micro-merchant shopping sites including Koudai, Youzan, and XiaoHongShu.

Fashion influencers in China
Fashion influencers in China

Key opinion leaders differ from traditional eCommerce merchants in two key ways. Firstly, they p[resent a personalized shipping experience, often using live streaming platforms, to create a highly intimate and interactive engagement environment. Secondly, they model clothes to get real-time feedback from their followers over live streaming sites. Easy access to local clothing manufacturers means that positive consumer feedback enables garments to quickly go into full production.

This internet celebrity economy was estimated to be worth RMB 58 billion (12.7 billion NZD) in 2016 and has spurred a dedicated ecosystem for its development. While it is still early days, Wang Hongs are expected to impact retailers and brands in three areas. Key opinion leaders interact directly with consumers, raise awareness and can help build a brand. In this way, Wang Hongs provide a new marketing channel to capture the attention of China’s youth.

Secondly, social selling techniques like live streaming and Q & A enable brands to gather rich insights and real-time customer feedback. This is effectively disrupting the product development process by using crowd-sourcing model. Finally, as Wang Hongs grow in popularity, some of the leading stars are set to become more visible as mainstream offline brands or even retailers.

 

7.   Suggestions on social marketing

First focus on the customer, not the channel. The always-on Chinese consumer migrates between offline and online channels, often simultaneously. Retailers and brands should first focus on understanding the customer journey, and then design a desired customer experience that addresses possible pain points, or moments of delight.

Once defined, the role of channels, platforms, marketing and content can then be aligned to how best they enable the desired customer outcomes. The end game should be personalization- an outcome that is constantly evolving but seeks to create meaningful experiences for each individual that fuse the online and offline worlds and strike the optimal balance between transaction and emotion.

Evaluate delivery models and partnerships. As digital influences a greater share of sales and customer engagement it is becoming increasingly strategic to overall business performance. Many retailers and brands have outsourced much of this responsibility to digital/social agencies and eCommerce service providers/Tps. These partnerships should be reassessed to identify the value it offers in an environment where digital commerce is becoming more strategic, brand and content-led.

In some cases, it may be better to in-source specific operations to have greater alignment with overall business strategy, control of execution, and agility in the market.

Align operating models and resources. Digital capabilities now need to be embedded in all parts of the business- it is now too important to remain just the purview of an eCommerce for a digital marketing team. For many traditional retailers, this change will need to be supported by a new organization structure.

Many retailers and brands are allocating a greater proportion of marketing spend to digital channels and some are combining budgets as the attempt to manage overall marketing return on investment.

 

8. The new growth avenues for New Zealand

Food. The growth in imported food products has been facilitated by the development of cross-border eCommerce. In the supermarket sector, Costco was the first to use a cross-border online-only market entry model in 2014 and has now been followed by other large global supermarkets including Woolworths, Sainsbury’s, Aldi and ASDA.

One of the key enablers behind the growth of food eCommerce has been the development of logistics capabilities throughout China. Today, 200 cities already have same-day or next-day delivery through JD logistics or Alibaba’s Cainiao alliance. Within the FMCG category, fresh food is the largest segment but the most challenging to operate online, a result of the perishable nature of the goods and costly cold chain logistics requirements.

The online fresh food market is already highly competitive with eCommerce giants, logistics companies, traditional supermarkets, and various well-funded start-up, attempting to capture a slice of this high growth market. Those with a strong fulfillment network like JD and Tmall supermarket and SF Best, ship directly to consumers from dedicated warehouses. Other like Metro and Fruit Mart use their physical stores as distribution hubs for online orders.

Cosmetics or fragrances. One of the main barriers to consumers buying these products online is the need to touch and feel the product. Hence, the relevance of physicals store for brands remains significant, but retailers should not neglect the opportunity that digital presents to enhance the in-store experience.

For example, Sephora embraces innovative in-store digital experiences featuring “The Fragrance Bar” in their Shanghai flagship store to maximize consumer engagement. Customers are able to immerse themselves in the experience with digital applications, interact with emotion-charged scents and share product information directly via social media as a way of personalizing their experience. These apps are aimed at increasing sales conversion by creating personalized engagements with different products.

 

PS: China’s marketplaces

China’s home-grown marketplaces occupy an impressive proportion of the Chinese eCommerce scene and are an important consideration for any prospective cross-border online merchant. Alibaba dominates B2C and C2C eCommerce within the territory but is facing strong competition from JD.com and other emerging outlets.

Alibaba runs two main eCommerce platforms:

Taobao: Created in 2003, the Taobao marketplace is a consumer-to-consumer platform similar to eBay, where customers can post new or used goods for sale or resale. Taobao is also used as a means for merchants to sell their wares directly to consumers, and, notably, Taobao doesn’t charge commission fees on transactions. Alibaba’s Taobao is reputed to hold an 80% share of China’s C2C market.

Tmall: Formed in 2008, Tmall is a business-to-consumer platform similar to Amazon which, in 2016, accounted for around 56.6% of China’s B2C online sales.

The unique ‘mall experience’ offered enables retailers to set up their own websites within Tmall so that they occupy virtual ‘mall space’ on the site. To display on this platform, sellers must pay a deposit, and Tmall recoups a commission on each transaction made. Importantly for international sellers, a Tmall virtual shop avoids the requirement of obtaining an ICP license.

 

Online marketplaces in China

Online marketplaces in China

 

Alibaba’s online stores together now account for roughly 80% of China’s entire eCommerce market. Despite the popularity of Alibaba’s platforms, however, there is still room for competitors to gain a strong foothold. It is important to note that many, including ‘official’ statistics on the Chinese market, often include B2B, B2C and C2C; some also include Online-2-Offline (O2O).

Whilst an obvious mechanism for gaining entry to the Chinese market, merchants should be aware of the associated costs of accessing these marketplaces. For example, initial deposits can range from $8,000 to $25,000; annual service fees of $5,000-$10,000 and then commissions on sales revenue around 5%.

Other ‘incidental’ costs can include being required to use approved agencies in the production of storefronts, collateral and sales information; guaranteed stock availability and stock location. Agency fees alone can run into many thousands of dollars.

These costs are purely indicative of expected volumes, brand awareness, and strategic branding all having an impact. However, they should be explored thoroughly as some brands have found a return-on-investment period exceeding 5 years.

Merchants can, however, balance these costs against access to over 280 million active buyers. This leads to another conundrum – can your existing business cope if the Chinese market really takes off for you? Because it can do so very quickly.

Another option to consider, perhaps as a first step, is the emergence of business models that allow Chinese consumers to purchase from international brands, without the brand has to have a Chinese presence. One example is Xiaoshongshu (Little Red Book). Recently valued at more than $1bn, this app allows customers to select products from around key markets and pay the company for them. Xiaoshongshu then sources these products for the customer.

 

 Suning is an electronics retailer that operates stores across the country. But it is transforming itself into an e-tailer so as to avoid the disastrous fate of the brick-and-mortar industry. It is interesting to see how the company uses its experience in the industry to conquer e-commerce in China. Our recent stats suggest it’s now up to fourth place in the B2C sector.

 

 Gome, a close rival of Suning and 360buy, also principally operates retail shops selling electronics and electrical appliances. As the market slowly diversifies into e-commerce, and as more customers turn to online shopping, Gome is also transforming itself into an e-tailer to keep pace with the market.

 

YiHaoDian is the country’s largest food and consumables e-commerce retailer. Products range from food to toiletries, and recently it has been diversifying into clothing and electronics. Walmart has a controlling stake in Yihaodian and the partnership became official last week.

 

Meituan and 55tuan are long-standing market leaders in the group-buy industry. They offer deals and discounts that are usable in many cities, such as at restaurants, cinemas, travel agencies, etc. The two sites account for approximately 26 percent of the daily deals market in China according to the most recent data, with a monthly revenue of 200 million RMB.

 

VIPShop focuses on discounts and flash sales. The online retailer partners with over 1,000 brands to bring certain amounts of items at a lower price for consumers. The site mainly covers clothing and electronics. It was one of very few Chinese tech stocks to list in the US this year.

 

These are the sites that drive traffic to other sites, mainly to Taobao.com. Mogujie and Meilishuo are more than just Pinterest clones. They are e-commerce referral startups that function as aggregators of different products listed on other e-commerce sites. Online shoppers will select and pick the items they want, perhaps led there by someone sharing an item via social media, and they will be redirected to the product’s original site for payment. According to Mogujie’s own stats in April this year, the site attracts 2.2 million visitors each day who browse 750,000 items on Taobao every day and end up buying 60,000 of those.

 

The following are explain the top 4 players. New Zealand companies should evaluate these eCommerce players and find the right platform for them.

Taobao – For Cheap Goods

 

taobao china online shopping

 

Taobao is owned by Alibaba group and is one of the largest online marketplaces where anyone including businesses and individuals can sell to China. Although this is convenient from a consumer’s perspective, as a retailer it may not be the most effective. Although it is relatively easy to setup, businesses must compete with thousands of small businesses in addition to the large brand name corporations. The lack of differentiation and other features makes the platform somewhat difficult to rely on.

 

Tmall – For Authentic Products

 

Tmall

 

Tmall is also owned by Alibaba group and is China’s largest online marketplace for selling domestic and international goods. It’s different from Taobao because it’s intended to be utilized by large professional brands for B2C transactions. Because Tmall is designed for B2C transactions they have a more extensive criterion in the way of making your business eligible to be listed on their platform.

Advantages of Tmall

Tmall has a lot of features and marketing tools that enable the vendor to engage with their audience. In particular, Tmall services help vendors to keep track of potential customers, and use metrics to increase trafficpromote user engagement, and ultimately close more sales. This makes Tmall ideal for large global brands that can afford it. Tmall also operates in certain free trade zones which enable vendors to store their goods in warehouses in China for easy delivery. This gives the vendors the option to either deliver their products directly from overseas to the consumer or to ship the products from a warehouse in China.

How to join

Tmall operates on an invitation-only basis, meaning that only qualified vendors are invited to join or can apply to join through a certified third-party service.

Criteria to be invited

The vendor must have a registered corporate entity outside of mainland China.

Must process retail and trade qualifications overseas.

Must also have a Chinese address that consumers can return goods to when necessary.

Lastly, Tmall requires that the vendor’s Tmall account is set up by the brand owner or an authorized agency.

 

JD – For Easy Access

 

jd china top ecommerce sites

 

JD operates the largest online direct sales market in China. With 166 warehouses in 44 cities across China and over 4,100 delivery stations, it has one of the most extensive retail delivery networks worldwide. JD also enables foreign vendors to open shopfronts and is licensed to import apparel along with food and beverage products directly to Chinese consumers. All without them necessarily having a physical presence in China.

Advantages of JD

Not only is JD an excellent e-commerce platform but it also provides vendors with three different service packages for product delivery and storage services. With three different types of partnership options, vendors can choose a service package that best accommodates their company’s objectives and needs.

3 Types of Partnerships with JD

1. Franchising Business Partner– Vendors are able to set up a store in JD and use JD warehouses to stock their merchandise. JD takes on the responsibility of providing warehouses, delivery services, and customer service.

2. Licensing Business Partner– Vendors can set-up a store and complete the packaging and delivery. JD will supervise customer service.

3. Self-Operation Partner– Vendors can sell to China on the JD platform but the warehousing and delivery will be handled by the vendors themselves.

Eligibility Requirements:

Must have a registered corporate entity outside of mainland China.

Have a market cap of at least 500,000 RMB.

Must meet trade and retail qualifications overseas

The account must be created by the brand owner or an authorized agency

 

WeChat Shops – An Emerging E-commerce Platform

 

WeChat store

 

WeChat was originally designed to be a Chinese messaging app but has evolved to become the most intuitive social media app in China. WeChat has met the growing demand for paperless transactions in China with its digital payment service, Wepay. More recently WeChat released a sophisticated e-commerce platform called The WeChat Shop. With this update, WeChat has successfully become an electronic wallet of sorts for its users, enabling them to make both paperless transactions at physical storefronts and on the digital front. WeChat is on the forefront of turnkey solutions for seamless transactions between businesses and consumers.

Advantages of WeChat shops

WeChat is the most popular social media platform in China with over 900 million active monthly users. WeChat shops are also becoming exponentially more popular amongst WeChat users. Since last year the proportion of WeChat online shoppers more than doubled growing from 15% to 31%. WeChat shops are also one of the easiest e-commerce platforms for vendors to set up an online store on. This makes it very accessible for small to medium-sized business to have an online store available to the Chinese without having to pay tens of thousands of dollars or have a slew of official Chinese business documents. For smaller brands, WeChat shops are the most cost-effective solution for selling their product in China.

Eligibility

To be eligible you must have a registered Official WeChat Service Account. You can either make an official WeChat Service Account on your own Chinese business license or you can hire a third-party agency to setup your account on their Chinese business license.

 

Good luck and have excellent sales in Chinese online marketplaces!

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