China is the biggest e-commerce market in the world and is set to grow by 15 per cent by 2020. The massive arrival of smartphones and tablets in China quickly enabled 76% of connected Chinese to make purchases via their mobile. This internet penetration linked to the mobile equipment will boom in rural China in 2017.
There are several things to know if you want to meet the expectations of Chinese consumers: it would be a huge mistake for a foreign company to reproduce its current strategy on the Chinese market thinking that it will suffice! Unlike in the Western markets, building a brand-owned website is most of the time not the best strategy. Let’s see why
1. What type of e-commerce should I use?
China has great potential and offers many opportunities to foreign companies. But brands and agencies are always facing the same question:
Should I launch a stand-alone website, be on the Alibaba’s marketplace Tmall, or open a store on WeChat?
Stand-alone websites are usually good representations of your brand in a market, a way to develop and tap into different markets. It permits to create interactions between the brand and customers, to facilitate sales and so to obtain some data about them. However, in China stand-alone websites are generating only 10% of the total e-commerce sales. If your brand awareness is low, you brand is bond to drown in the Internet Ocean. This is due to the different approach that consumers take into getting to know a brand. Chinese consumers, compared to Western ones, use less web search engines like Baidu when they are looking for information about a brand or a product. Mostly, they go directly to popular e-marketplaces such as Taobao and Tmall.
Flagship on market places are virtual storefronts where consumers can visit to buy a product or service of their choosing. In China, Alibaba with its Taobao and Tmall dominates the e-marketplace landscape. The large selection of brands and products available on these platforms satisfies the expectations of Chinese consumers who mainly seek choice, speed of delivery, practicality and simplicity of action. Marketplaces like Tmall or JD.com are the main strategic entry points for foreign brands’ China market penetration. During the last 11/11, the most important online sales period in the world, Alibaba set a record of $17,8 billions in GMV.
Social messaging commerce is the using of messaging app like WeChat to sell product directly to users. At the beginning, WeChat was just a messaging app but, quickly, it included other functions like social media and web browser. It gave the opportunity to brands to push content through articles, HTML5 pages and provide added value services. The core of WeChat e-commerce is the electronic wallet and offline payment Tenpay. To use WeChat as e-commerce, a brand has two possibilities. The first one is to link the existing brand website to the Brand Official WeChat Account. The second one is creating WeChat Shops perfectly embedded into the platform. Thanks to the “one-click-payment” consumers can seamlessly purchase products without having to leave WeChat.
WeChat also gives the possibility of including a customer service into the brand Official Account. Here consumers can ask brands direct questions by just texting them and receive immediate answers.
But, making your products available on messaging apps creates the same challenges as selling on your own website. If brand awareness among consumers is low, none of them will follow the brand account and therefore, see your product.
|Stand-alone website||Control – Owner of your data, customization and autonomy in terms of content format and product proposition.||Time to market – Lower exposure, Hosting, loading speed and ICP are time consuming processes.|
|Flagship on a Marketplace||Volume – Higher exposure, easy to set up, trust with reviews and acquisition database||Competition – Competition, marketing costs and fees|
|Social messaging commerce||Potential – Connected to Tencent platforms, customer services and social interactions||Specific – Lower exposure if you are not a well know brand|
In China, the e-commerce battle is currently happening in marketplaces. Regardless your industry, your target consumers are most likely using these marketplaces on a daily basis and your product or service must be on these platforms.
E-marketplaces have another advantage for brands’ distribution strategy: logistic.
Selling in China means delivering products throughout a huge territory, bigger than Europe itself. Import fees, warehouse renting, delivery team, in-house resources, etc.
2. Chinese e-commerce leaders
The Chinese e-marketplace’s landscape is clearly dominated by two leaders: Alibaba and JD.COM. Yet, the two groups are based on two very different business models. To make a comparison with similar business models in Western markets, Alibaba would be similar to E-bay, offering B2B trading with Alibaba.com, B2C with Tmall.com and C2C with Taobao.com. Conversely, JD.com is more like Amazon, selling directly to its customers from its warehouses across China.
Alibaba, including Tmall and Taobao, and JD.COM represent more than 80% of the market share of the B2C and C2C e-commerce in China.
This means that these two platforms are virtually unavoidable making brands completely dependent to them. In order to avoid this, brands should carefully diversify their e-commerce strategy by selecting the platforms according to their industry and target consumers.
Figure 1 Market Share of Main Players (iResearch)
Being visible on these platforms is not simple considering the impressive number of brands hosted. Brands have to pay very expensive fees to be visible and push their products on the home page or appear at the top of the list for global searches. At the same time, the costs of entering these platforms are often high depending on the product category.
3. What are the different types of e-commerce platform
Generalist and specialized platform
Going into e-commerce in China is certainly an imperative but it is also necessary to know what type of platform suites your brand and industry the best. There are two types of e-marketplaces, different in their positioning.
Generalist platforms, offering a wide variety of product within numerous product categories. This is the case of Tmall, JD or Suning where consumers can buy a computer as well as a bottle of wine, a moisturizer as well as dried beef.
Specialized platforms are proposing products for a specific category such as Food (Epermarket, Womai Yihao Dian, or Kate & Kimi); Cosmetics (Jumei, Strawberrynet or Sasa) Fashion (Yoox, Meilishuo or Yesstyle) Or Tourism (Ctrip, Tuniu or Alitrip.)
Cross-border platform models
In order to be present in these Chinese e-marketplaces, brands must have a legal presence in China. But not all is lost for foreign brands that want to tap China market without physically venturing into the market. Tmall and JD.com offer the opportunity to foreign companies to sell products in China through special platforms specifically dedicated to foreign brands without a Chinese business license – Tmall Global and JD Worldwide. The fee to be on these platforms is significantly higher compared to their Chinese native counterparts. It is also compulsory for foreign brands to teem up with an e-commerce agency (also know as TP – Tmall Partner) for local operations like domestic warehousing, national delivery service, Chinese speaking customer service and return policy referenced to a Chinese local address.
Despite the relatively higher operational fees, these platforms provide brands with some significant advantages such as higher exposure and communication based on quality assurance (Western products are generally more trusted compared to local Chinese ones) – “100% foreign original authentic”, “100% foreign merchants”, “100% domestic return”. Many brands at a very early stage of their market entry strategy prefer to pay a higher fee to be on Tmall Global or JD Worldwide and rely on a TP for e-commerce operations rather than rushing into huge investments to build a physical presence in the market.
This strategy also allows them to collect data on the market as well as their consumer. This is very useful to apply a test and lean approach and readjust if necessary their second stage of their e-commerce strategy
The e-commerce platforms are extremely important and used in China and whether it is a small unknown brand or a well know brand, it is equally preferable to opt for a presence on these platforms. However, while minimizing costs on certain points, they are not accessible free of charge and it is important to consider their advantages and disadvantages before making the choice.
Based on our experiences in digital strategy, performance analysis and personalization, we are strongly convinced foreign brands have to define a rolling plan to implement and continuously analyze digital projects; within this complex and dynamic market, a test-and-learn approach is not an option but an obligation to reduce risks.
A good strategy is to start to reach your audience using super-marketplaces or messaging apps. You can then allocate products and resources over different platforms, owned and paid. The mix will depend your size, strategy and resources.
For more information about how the retail and e-commerce market in China is evolving please do not hesitate contact us.
Equancy Lab, with the collaboration of the Stephanie Decollas MBA Student at ESSCA school