China’s annual online-retail sales passed those of the United States in 2013. By 2018, they are estimated to reach about $610 billion—passing Europe and the United States combined.
Yet though the market is vast, succeeding in China is far from easy. While select leading Western companies have captured some of the country’s explosive e-commerce growth, many make basic mistakes, from equating China’s e-commerce leaders with US companies (“Alibaba is China’s Amazon!”) to assuming selling and distribution practices from home markets are transferable. The reality is that China is simply different.
Understanding China’s e-commerce market starts with knowing its online consumers and companies. First, there are more than a dozen multibillion-dollar players shaping parts of China’s digital marketplaces. Engaging with just one of these important platforms isn’t enough—they are interrelated, and you need to work with several.
Second, no strategy can ignore the country’s three digital powerhouses: Baidu, the largest search engine; Alibaba, proprietor of the largest online shopping mall; and Tencent, the leader in gaming and social networking. While each may appear as though it plays in a different arena (search, e-commerce, and social, respectively), in reality, the companies compete more directly with one another. Through organic and acquisitive growth, each has a role throughout the online consumer’s decision journey.
We recommend strategies that incorporate the following five priorities:
Adopt an integrated platform strategy
Retailers know that e-commerce platforms can compensate for limited physical-store networks. This is especially applicable in China, where our research shows consistently that up to 70 percent of Internet users shop online regardless of the size and Internet penetration of the cities in which they live.
Yet advanced consumer companies in China don’t just sell online through their own sites. They use a variety of digital platforms, typically managing a flagship store on Tmall and selling through cross-category players such as JD.com and category-specific sites such as VIP.com.
Understand China’s vast network of distributors
Managing distributors in the digital space in China is different than in the West. The country’s e-commerce market is filled with small distributors who have opened online shops through Tmall or Taobao, Alibaba’s consumer-to-consumer platform.
While consumer-to-consumer is declining as a percentage of China’s total e-commerce market, it still accounts for about 50 percent of China’s e-commerce sales. That makes it a critical platform for companies because the site has become a haven for counterfeiters as well as for parallel importers. In addition, excess inventory from large retailers or their sales forces also serves as a major source of authentic products on Taobao, sold at significant discounts.
While Alibaba has strengthened measures to purge pirates from Taobao, we’ve also seen multinational corporations evolve their approaches. At first, many battled rogue distributors with a variety of “get tough” measures, yet practices involving “carrots” as well as “sticks” are more effective.
Several large consumer companies, including Kimberly-Clark, have instead proactively identified and partnered with their largest local distributors on Taobao, providing them with store certificates, stable product supply, and select product prelaunch benefits. In return, Kimberly-Clark asked distributors to comply with its branding and pricing guidelines.
Harness the power of social media
Because Chinese consumers do not trust official sources, their purchasing decisions are influenced much more by word of mouth. In fact, two-thirds of China’s consumers cite recommendations from families and friends as the critical factor influencing their decision to buy, compared with only one-third in the United States.
What’s more, we regard China’s social-media-platform leaders as more attuned to commerce and opportunities to work with brands and retailers than their US counterparts—none more so than China’s dominant social-media player, Tencent, which evolved its WeChat messaging service from a platform for social networking to one for customer relationship management, commerce, and payments.
In parallel, WeChat is rapidly evolving its commerce services. Our recent iConsumer survey found that 15 percent of WeChat users have made a purchase through the WeChat platform, and 40 percent are interested in doing so in the near future.
Leverage China’s growth in location-based services
China already has more mobile Internet users than PC Internet users. Our research shows that almost two-thirds of Chinese consumers have made mobile purchases, and mobile commerce is predicted to surpass PC commerce in 2016. Not surprisingly, as mobile grows exponentially, so will location-based services that make online-to-offline transactions more important.
China is rapidly becoming a market where the consumer shopping experience integrates social media, location-specific information, and mobile-payment capabilities on smartphones. Winning strategies will increasingly require leading-edge capabilities to partner with digital platforms in social media, location services, and mobile marketing (“SoLoMo”) and, ideally, mobile commerce and payments.
Work with platforms to understand China’s consumers
Brand owners and retailers can uncover consumer insights by collaborating with digital-platform businesses in China. Consider P&G, China’s biggest digital advertiser, which has partnered with Baidu to develop its multichannel advertising campaigns. In reviewing search patterns for P&G’s Olay skin-care products, Baidu analysts determined that many users were framing their queries in ways that suggested a strong connection between concerns about skin care and aging. P&G used those insights to devise an advertising campaign built on the idea that Olay products could help older women “hold on to age 25,” which resonated strongly.
Working with China’s e-commerce providers to co-develop consumer insights can benefit brand owners, retailers, and platform companies—and help strengthen a company’s relationship with China’s e-commerce players beyond being purely transactional.
Global brands will not maximize their digital-commerce potential in China solely with practices and formulas that have worked for them at home. In fact, success may require unlearning what you know.