How to win in China's $1.5 trillion e-commerce market | Article – HSBC VisionGo
Livestreaming e-commerce expert shares her 27 years of experience doing business in China where she consults for some of the world's biggest brands
China’s e-commerce market is the world’s largest. Feeding from more than 900 million online users (according to the Ministry of Commerce), online retail sales were Rmb10.6 trillion ($1.51 trillion) last year, up 16.5% from 2018. But the growing number of sales platforms means that brands need a well-calibrated strategy to get a foothold in this rapidly changing market.
WiC spoke with Sandrine Zerbib, an expert on e-commerce in China, to learn more about how the best brands drive consumer engagement, and above all, convert traffic into sales. After moving to China 27 years ago, the French executive began her career at Adidas. Since 2010 she has advised premium fashion, lifestyle and sports labels through her Shanghai-based consultancy Full Jet. Her clients include Club Med, Dr Martens, De’Longhi, Fossil, Lacoste, Jack Wolfskin, Skechers and UGG.
What drew you to China’s e-commerce sector?
I first came to China in 1994 to help Adidas develop their business in the country. I didn’t plan to stay for an extended period of time but soon I got the impression that China, despite being a challenging place, was where things would happen.
In 2010 I got an equally strong impression that China would be the place where e-commerce could take off. Indeed, it has been ahead of any other country in terms of share of e-commerce in total retail. The business model of virtual malls – which enables a brand environment and sales channels under a single platform – is in a way invented by China. There you also see sales and marketing being linked intimately together, the massive development of content marketing, as well as social commerce. All of this proves to me that if there’s one place that leads in e-commerce and works as laboratory for the rest of the world, it is China.
Why is Chinese e-commerce ahead of the rest of the world?
Generally speaking, I’d say that Chinese consumers are very willing to try new experiences and many are digitally engaged. They welcome innovation more than anywhere else. It also helps that, to a certain extent, physical retail in China is not as established as in some other markets. E-commerce has become an avenue that offers consumers a way to access products and choices, as well as to see a lot of things that would otherwise be much more difficult in a physical environment.
A strong distinction of the Chinese ecosystem is that it really puts consumers at the centre of everything, meaning that brands have to work around their customers. By doing so, the platforms have attracted a huge number of consumers and therefore data as well. This has been a strong driver of the rapid development of e-commerce in China.
How has China’s e-commerce sector changed over the years? Can you identify some watershed moments?
Honestly, it’s constantly changing. I’d say that at the very, very beginning, the major trigger was Alibaba with Alipay. The moment that Alipay gave consumers a secure payment method was the beginning of the explosion.
The next milestone was the creation of Tmall in 2008. It was significant because for the first time major brands were given an infrastructure that helped them create virtual stores that carried their styles, colours and tones. If you look around the rest of the world, there aren’t other online marketplaces that offer the same brand environment. As a result, a lot of brands went online on Tmall, and that has ushered in the premiumisation of e-commerce that is still continuing today. (Think Tmall’s Luxury Pavilion and JD.com’s partnership with Farfetch).
Social commerce is another milestone. WeChat mini-programmes, for instance, have erased the boundaries between sales and marketing. Brand-building and sales transactions become one and the same activity. Everything leads to conversion and hence the surge of content marketing.
The last so-called watershed is probably Covid-19, which has accelerated e-commerce significantly in China. It’s like making a leapfrog of at least a year or two compared to a situation without the crisis, especially in categories like grocery and more luxurious products. The spurt has also prompted a shift in marketing budgets. We see brands getting more demanding in terms of the efficiency of their marketing spend. They want their spend to be measurable in traffic and conversion.
With the rise of Pinduoduo, which is essentially a platform for bargain hunters, there is talk of “consumption downgrades” in China. What’s your take? Are shoppers tightening their purse strings?
I’d say yes and no. I think we have to be careful with the notion of “consumption downgrade” because in reality people are still trading up. At present the premium segment is the fastest growing outside of grocery (grocery sales have been given a major boost by the Covid-19 outbreak). Such a trend will prevail.
Having said that, we also have an e-commerce market that has been rather discount-driven since the beginning of the year. The role of the major shopping festivals has increased massively, with this year’s 618 promotion (see WiC501) much bigger than the previous one in terms of the number of participating brands and the levels of discounts, as well as GMV [the total value of sales in a particular marketplace].
So, to some extent, it’s difficult to say whether Chinese shoppers are becoming more cautious with their money or more influenced by discount offers such that they will wait until the big shopping festivals to splurge.
I’m afraid that the latter is the case as we’ve noticed that a lot of brands experience incredible peaks during festivals, but shopping activity isn’t as dynamic in between the big campaigns.
Do note that the phenomenon does not just come from the demand side. Inventories in the market, particularly in apparel, sportswear and footwear are quite high. As a result, the priority for a lot of brands this year is actually to reduce their levels of inventory quickly. They are doing this through discounts and other benefits through online channels. Under these circumstances, why would consumers pay full prices?
How might brands choose between selling on Alibaba, JD.com and Pinduoduo, given there is often a push from the e-commerce platforms for exclusivity?
I’ve never heard of JD.com saying if you go on Tmall, you cannot be on JD.com. Never ever. I don’t have examples – maybe it happens. Neither do I have examples of Pinduoduo doing it.
As for Tmall, we need to keep in mind that it has more that 60% market share of China’s B2C e-commerce, which is enormous. With that they have the power to put on a bit of pressure, but it’s never systematic. There are many, many brands with stores on multiple platforms.
In terms of choosing between platforms, you really need to think about the market proposition of your brand. What kind of price points? Are you more female or male driven? If you’re doing electronics, JD.com is a good place to be. If you’re doing cosmetics, Tmall is the better place. If you’re doing mass-market, cheap prices, Pinduoduo might be an interesting choice. If you’re not looking for big volumes, maybe you’d prefer to keep a store on WeChat mini-programmes. If your budget is limited, maybe you don’t want to go to Tmall yet.
All of these aspects are going to drive your choice of platforms. But once you’re quite established, and especially with the development of social commerce, what brands want to consider is a multi-channel approach.
What is a multi-channel approach?
Obviously, you might have a main flagship store where the majority of your transactions take place. But at the same time, you want to multiply exposure by having a presence on multiple platforms in conjunction with marketing activations, which enables you to reach out to different segments of consumers more specifically.
I think the future is this rather than choosing one platform over the other. And there is definitely room, especially with social commerce, where engagement is more targeted.
When e-commerce starts getting such a huge share of retail you need to have different platforms for different types of consumers. Take Pinduoduo. Yes, its growth has been extremely impressive but it’s for a certain type of consumers – price- sensitive, deal-conscious and less brand focused. In other words, for Pinduoduo to attract premium brands, it would need to change considerably.
So, it’s not a one-size-fits-all. Having several platforms is a good thing.
If a brand wants to succeed in China, can it do so without a social commerce strategy?
Not now, I don’t think so. Put it this way, if you’re a huge brand enjoying massive awareness and organic traffic, you might still make sales, relying on just one or two stores on big platforms and without doing much on social commerce (not that I’m encouraging it!).
However, if you’re a small or medium-sized brand, then you don’t have the choice. Social commerce is an absolute must or you will not get the exposure you need, and you will not develop.
This comes along with the concept I mentioned previously of having a multi-channel approach. With it, you can address different consumer segments with different approaches on different channels. The idea is to mesh together social interactions, marketing activations and sales transactions.
Why is livestreaming such an effective tool for marketing products in China?
It stems from peoples’ desire to have fun and shop at the same time. The idea is similar to ‘retailtainment’, where bricks-and-mortar stores work toward creating unique experiences, not just offering customers the chance to buy stuff.
Such a phenomenon is not uniquely Chinese; but China has taken it much further than anywhere else. With the rising demand for retailtainment, it’s understandable that livestreaming has become so popular because it provides entertainment and brings transactions.
With livestreaming consumers often get access to very good prices because the hosts tend to offer the best deals for the featured products. It has created some spectacular results for some brands.
But I want to emphasise that using livestreaming for marketing is more complicated than it seems. Let’s say you do a livestreaming session on Tmall. If you broadcast it inside a virtual store that has moderate traffic but not on the platform [Taobao Live], you’re not going to have a lot of traffic and conversions. Also, for more expensive products, livestreaming is not going to convert [to sales] as effectively as for relatively cheap products.
How should brands think about dividing investment between bricks-and-mortar stores and digital engagement?
There is no general rule. It depends on many factors such as your segment, your supply chain, your number of stock-keeping units (SKUs), etcetera.
Basically, to have a physical store you need to have a sufficient number of SKUs and be able to offer a very strong retail experience. If you can’t do this, it may be better not to spend too much on physical retail. Keep it more limited because it’s not going to help you.
What should foreign brands pay attention to in picking key opinion leaders in China?
There are millions of KOLs. The KOL that is right for one brand might not be right for another, so it’s very important for foreign brands to use agencies or databases that help them to do due diligence before they choose their KOLs.
In the process, pay attention to the KOL’s profile, the number of followers, and the companies that she or he is already working with. It’s also important to monitor the KOL’s performance, to understand the distribution of his or her articles or posts, and the heatmaps of whether people read all or parts of the content.
Identifying the sources of traffic will also give you a sense of how real their traffic is. We suggest KOLs to our clients a lot and we do due diligence on their behalf. It’s fundamental! You know, the numbers can sometimes be completely fake.
The price of the KOL is also important. A KOL who is extremely cheap is cheap for a reason and it’s often not worth hiring them. But a KOL who is overpriced will never bring you the return on investment that you might need.
What about fake sales or ‘brushing’ on some of the platforms? The Chinese authorities seem to be targeting this kind of behaviour?
It’s a kind of cleaning-up process that we’ve seen quite often in China. What usually happens here is that new trends develop very quickly at the beginning and this then encourages wilder behaviour. When the market starts maturing, the government steps in and clears things up, making sure that things are done in a more orderly way. I think it’s a good idea to introduce order into some of the more jungle-like environments. Little by little there will be an elimination of improper practices.
How should international brands navigate the rising geopolitical tensions between China and the world?
I think they should be very careful with the words they use when it comes to commenting on the situations in places like Hong Kong and Taiwan. They should have someone really check everything and they should be careful to avoid the impression that they look down upon China in any way. But apart from that the brands should just try to stay away from these tensions. Focus on building a strong DNA, creating good products and don’t meddle in political topics.
Research by BrandZ found that 87% of the Chinese surveyed were slightly/far more in favour of buying goods and services from local suppliers. Are Western brands vulnerable to a rising tide of nationalism in China?
When it comes to products and commerce, nationalism is more often posture than reality.
Yes, when you survey people they often claim that they are favouring Chinese brands and so forth. But when they buy something, their behaviour is likely to be rather different to what they claim.
People who specialise in surveys know that some questions invite answers that do not always reflect the absolute reality. It’s a fact. And when it comes to commerce, nationalism is often more of a reflection of what people say than a reflection of what they actually do.
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