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Top lessons from China’s e-commerce-driven middle-class consumer
The rise of the middle class in China is an important driver of global economic growth. With increased affluence and sophistication in both social and mobile technologies, Chinese consumers are looking for a more connected buying experience.
Chinese consumers now use social media to learn more about brands and products, make purchases on social media platforms and instant messaging services such as WeChat and also use social media such as Weibo to share their opinions and post product reviews, which are highly visible to their respective communities.
Price is becoming less of a driver. They are increasingly demanding higher quality products that are tailor-made to their needs. Value remains important as customers are well informed about global prices since most of them travel physically or digitally. Therefore, both foreign and Chinese brands need to engage strong brand influencers in these communities, leverage social trends to build strong brand values and unleash the power of social commerce.
As a whole, the advances of China’s technology infrastructure are exploding and robust enough to develop a high level of connectivity in the market, linking consumers, retailers and manufacturers to boost both domestic and international e-commerce growth.
Platforms versus branded websites
From my observation, there is a higher inclination for Chinese consumers to purchase on platforms as they offer multiple choices, well-accepted product presentation and information, payment gateways, peer ratings and regular promotional activities. One important statistic is that Tmall by Alibaba controls over more than 40% of total B2C business in China.
Through my market research, small and medium-sized enterprises typically generate very low conversion rates on their own branded website even though they provide reliable and accurate information as well as authentic products. This shows that Chinese consumers are increasingly looking at trust and reliability of the site with a multitude of choices being available to them to build credibility and instil knowledge about the products and services offered by merchants.
However, for luxury brands, they may do better building their own storefronts rather than being on one of China’s e-commerce platforms. Chinese consumers are catching up very quickly and learning so fast about luxury brands through social media and are capable of finding the brand sites directly. The upside of having a branded website is that there is more ownership of content and client relationships than what platforms typically provide. Therefore, I will highly recommend brands to establish both their branded websites and also manage their online presence on key platforms and search engines to ensure consistency when promoting these official brand assets to their respective market segments.
With such a high degree of connectivity and sharing, I foresee that customers services will be an important differentiator for many digital businesses in China. With better access to information and the emergence of sharing economy, customers are paying attention to service (time is taken to deliver the convenience of returns, effective refund services, customer service via WeChat etc.). China customers are not just buying domestically, they are buying more from global websites due to higher purchasing power and also better brand knowledge.
Therefore, buying overseas through Daigou (group buying) remains a hot trend due to price arbitrage. I observed that international websites are increasingly targeting China to build a direct channel to the Chinese consumers. In the face of this, local platforms have improved their customer service standards to further differentiate themselves from overseas competitors.
O2O in China
Online to offline is an important and growing trend in China. Having an exclusively online presence will not create a sustainable brand. At each end, the brand will need a face to face touch point. New technologies and infrastructure have paved the way to merge online and offline into one holistic shopping experience. One prominent example is instant messaging technologies such as WeChat, which enables them to ‘shake’ and receive exclusive offers and services in-store. I strongly believe that China will see more online brands opening up pop-up stores and physical locations.
We are already seeing this as online brands aiming to improve customer engagement by delivering new and different experiences. This could be in the form of a different way of physically interacting with a brand through a pop-up store or experience booths or through digital means such as video, music or live streaming events. This integrated experience will better allow China customers to gather more data and make more informed choices about their purchases. There is a trend among big brands like Apple, Starbucks and Burberry of working with social media influencers and celebrities to generate targeted retailer and user generated content with key opinion leaders. This allows better focus on the digital channel as a means to enhance the customers’ offline store experience, which merges with online purchases for more effective omnichannel integration.
Innovation and digital retail in China
Chinese consumers are experiencing a digital paradigm shift. I predict that the trend is moving from the information age, which focuses on the accumulation of data through social media mediums such as Weibo and WeChat to transition to the Experience Age, which focuses on the customer's experience. This can be through live streaming, the consumption of physical product or services via on-demand platforms such as food delivery services (Ele.Me) or ride-sharing services (Didi Chuxing).
The growth of O2O will only mean that the brands have to maintain a consistent online and offline brand image to rapidly build something to scale and meet the evolving needs of the China consumer. Distribution and operational agility are key considerations for an enterprise, and the digital world can enable them to better serve customers by connecting the in-store and online experience through these omnichannel capabilities.
Lionel Sim is founder of China Tech Roundtable.
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