What strategy should online retailers pursue in China?
Written by Edmund Cheung, Director of Marketing and Enterprise Business, China Telecom Europe
When was the last time you pressed the “buy” button to purchase something online? You are probably among the 95 per cent of British consumers who now do so and mirror a global trend. In the world’s most populous nation, it is estimated that half a billion Chinese are online. To put that into context, picture a market that combines the populations of the United States and Brazil – yes, that’s pretty sizeable. Now take into account that China's economy is worth nearly $11 trillion and the 2015 Singles Day shopping festival generated $14.3 billion – smashing the 2014 record by $5 billion. You have a large, lucrative market that can’t be ignored. So, what strategies should an e-commerce retailer pursue to succeed in the country?
The always-connected Chinese consumer
One of the biggest mistakes some companies can make is to generalise and assume that all Chinese consumers are homogenous. China’s working age population is around 915 million and Goldman Sachs identified four tiers of potential customers every business should be mindful of:
• 1.4 million movers and shakers have an annual income per capita of around $500,000.
• 146 million people belong to the urban – ‘narrow’ –class with an annual income per capita just over $11,000.
• 236 million blue-collar and migrant workers belong to the urban mass and have an annual income per capita just over $5,500
• With a population of 387 million, China’s rural workers have an annual income per capita just over $2,000.
Each of these customer segments have different requirements when shopping online. A survey conducted by KPMG on why Chinese consumers shopped online found price as the key reason why people chose to buy online. These digital consumers, the report notes, are more aware of price. Other factors included convenience and variety. Younger Chinese consumers revealed that they could buy unique or bespoke items online – unlike at shopping malls. Those outside the main cities - where brands may not have physical stores - responded that they shop online to have access to a better range of products and brands.
At its recent earnings announcement, Apple revealed that its iPhones sales were up 87 per cent in China. And along with Apple, handset makers such as Huawei, ZTE and Xiaomi have all helped China achieve an impressive mobile penetration rate of 95 per cent. Given that 80 per cent of Chinese consumers access the web via a smartphone, no wonder mobile commerce in China grew by 100 per cent in Q3 2015. Put simply, retailers must take mobile into account (like any Western market) when planning an e-commerce strategy in China. In terms of apps, for iOS it is Apple’s App Store. However, instead of Google Play, it is 360 Market, Baidu’s 91 Wireless, UCWeb, Tencent’s MyApp, Xiaomi’s Mi Market, and Wandoujia.
One of the most effective means of reaching Chinese consumers, especially Millennials, is via the country’s unique social media platforms. The likes of Baidu, WeChat, Youku and Weibo have soared in popularity and had over 630 million users by the end of 2014. Chinese consumers spend an average of 25 hours a week on social media and their buying decisions are certainly influenced by it. Like their counterparts in the West, they often showroom at bricks and mortar stores, then go online to research and purchase the product - then they share reviews of it via social media platforms. No business hoping to tap the Chinese market can overlook the country’s popular social media and mobile app landscape.
Retailers have two options when it comes to their online strategy. They can partner with a local company such as Alibaba and find a home via its Tmall or Taobao marketplace. The platforms attract millions of Chinese customers a day and is home to over 70,000 brands. One retailer that recently chose Tmall is supermarket behemoth Sainsbury’s. The company is hoping to take advantage of China’s online grocery market, which IGD estimates to be worth over $180 billion by 2020. Given that there are thousands of competing brands on Alibaba’s platforms, some retailers prefer to launch their own e-commerce website. If you choose this option, at the risk of stating the obvious, ensure that e-commerce solution is localised – rather than relying on an English language website to reach Chinese netizens. While a growing number of Chinese speak fluent English, a Mandarin website would ensure that you don’t exclude potential clients.
Provide value and local insight
Chinese consumers – like most online shoppers in the world – have little time for sluggish websites and apps. It is estimated that nearly half of all shoppers abandon their shopping carts because of dead or slow loading data. Even a few seconds in data transfer times could cost you customers. That’s why the location of your datacentre can make a crucial difference. Host your website in China with a reliable local networking partner who has datacentres spread across the Mainland.
Similar to how slow loading websites annoy shoppers, consumers also need their orders delivered on time. Local logistics companies can offer an enterprise-class delivery service - often at better prices than some large global couriers. Ultimately, online retailers must offer a one-stop shop that includes mobile payments, order dispatching and tracking of orders to offer added value to their clients. It is a competitive e-commerce landscape. Retailers can’t lose customers because of poor technology – a competitor is only a click or swipe away.