Factoring China's Big Techs' Tentacles into Marketing Strategies
One of the giveaways of a newbie to China is the bafflement about being unable to access Google, Facebook, Youtube, Instagram and Twitter - unless they're chewing through their data roaming quotas or have planned ahead with a VPN. It quickly becomes apparent that China's digital ecosystem is unlike anywhere else in the world.
Those same newbies are likely to try and make sense of it all by making direct comparisons of Amazon with Alibaba, Facebook with WeChat and Twitter with Weibo. Yet the Chinese platforms aren't just different by appearance and namesake; their features and, more importantly, the purpose they serve in the consumer journey are often quite disparate from platforms in the West. In many cases, they are functionally more advanced (often by years) than overseas apps, which has seen companies like Apple, Amazon and Facebook replicating features from Chinese apps.
Many brands understand these differences and focus on localising tactical campaigns to take advantage of Chinese platforms' rich and engaging features online and offline. Yet a number still miss the bigger picture of how China's tech giants differ from the West: their touch points with consumers are far deeper, wider reaching and offline than those overseas.
One of the important growth strategies executed by China's tech companies has been to expand beyond their core industries, even if links seem tenuous to outsiders. We saw this in 2014 when Alibaba began purchasing brick & mortar stores and then again in 2018 with their investment in screen advertising.
There are a number of reasons why this type of expansion has happened much more in China than other countries: 1. In most countries when companies get too large and dominant, they are usually forced to split. In China there is barely a whiff of this; 2. Most of China's bigger companies with real money to invest are tech firms and State Owned Enterprises (SOEs). As SOEs are comparatively more conservative, there is less competition for big tech companies when making major acquisitions; 3. Traditional channels are less mature and more fragmented in China, enabling lower acquisition costs for market leaders and much more scope for disrupting tech giants to break in; 4. Accumulation of user data is far more liberal in China, providing significant scope for tech companies who already have the data. This enables them to utilise data synergies across new acquisitions, which can help justify paying a higher price for them; and 5. Consumers are much more open the commercial use of their data and appreciate the convenience it brings.
The approach hasn't just been adopted by China's famous tech giants though. We've also seen lesser-known tech companies utilising their presence, channels and data from their category. For example, mid-sized travel portal Tuniu has tapped into the nuptials industry, launching a marketplace just for wedding photography.
What does this mean for brands? Brands should understand just where Alibaba, Tencent, ByteDance, Meituan and other niche platforms are playing, even if they don't appear to have an obvious connection with their industry. Awareness of their reach and subsequent opportunities can help determine how best to partner with and leverage them. Even the biggest brands in China rarely attempt to approach the market alone and will buddy up with one or more of the tech giants. Similar to the many brands who have co-located marketing staff close to Walmart or Carrefour in the West, close proximity to China's tech leaders is likely to be an increasingly common strategy in China. Contact China Skinny to assist you in identifying these opportunities and recommending how best to leverage them.
Here are this week's news and highlights for China:
Chinese Consumers
Aiming for the Top: Can China Escape the Middle Income Trap?: Countries can become "stuck in the middle" as they struggle to compete with low-income newcomers where labour costs are still low, and advanced high-income economies with strong innovation. Since 1960, only 15 countries have escaped the "middle-income trap." Can China beat the odds?
Second Joint Survey on the Impact of Tariffs: Amcham's member survey on May 16-20 found 74.9% of businesses had a negative impact resulting from the increases in US and Chinese tariffs. These included lower demand for products (52.1%), higher manufacturing costs (42.4%), and higher sales prices for products (38.2%). While 53.1% have not seen an increase in non-tariff retaliatory measures by the Chinese government, 20.1% experienced increased inspections and 19.7% slower customs clearance. To cope with the impact of the tariffs, companies are increasingly adopting an "In China, for China" strategy (35.3%), or delaying and cancelling investment decisions (33.2%). Maine's lobster exports are an extreme example of the impact of the trade war, with exports plunging 84%. American consumers will unequivocally be the losers according to the IMF with the trade war likely to cost the average US family $2,300 a year according to Trade Partnership Worldwide. 'Widespread store closures' in the US are expected with $40 billion in sales at risk.
How this Alibaba Executive has Wired Up More than One Million Chinese Mom-and-Pop Stores: There are six million mom and pop stores in China, representing half of consumer packaged goods sales. Alibaba's Ling Shou Tong (integrated retail) had signed up more than one million of these shops by September last year, along with more than 75% of large consumer packaged goods brands. Every time a store owner opens the app, Alibaba can recommend products based on the needs of consumers within 300 metres.
Secondhand Shopping Becoming a First Choice in China: Buying pre-owned items was once taboo in China as this was seen as a sign of financial struggle, but that is starting to change. By 2020 China's secondhand market is expected to double from 2017's ¥500 billion ($71 billion) sales. Last year, monthly active users on 'recommerce' platforms grew 46.4%. Of the 200 million users on Alibaba's Idle Fish recommerce platform, over 60% were born after 1990, with sustainability being a strong reason cited for the purchases. Brands such as H&M are tapping into the trend partnering with Idle Fish to give shoppers credit to spend on their Tmall store with each bag of used clothing they give back to the brand for recycling or repurposing.
Chinese Tourists
China’s Travel Mega-Portals Branch Into Finance, Retail and… Wedding Photography?: Big players like CTrip, Qunar and Fliggy have extended their offerings along other verticals, moving into retail, financial, telecom and niche-market services. Weddings are a good example: $80 billion was spent on weddings in 2015, up from $57 billion four years earlier. Couples were typically spending between 20% and 25% of their nuptials budget on photo shoots not just as a record of marriage, but proof of the love, romance, freedom and financial resources. This has seen travel portal Tuniu launch Lvpai, a marketplace just for destination wedding photo services.
Tencent Leads $250 Million Round into Mafengwo: Chinese travel platform Mafengwo has raised $250 million to expand its content offerings and by building a new AI-driven one-stop travel service platform. The platform has grown gross merchandise volume more than 100% for four consecutive years. The possibility of better integration with Tencent assets will further boost the platform.
Digital China
After Ofo: How the Bike-sharing Firm’s Collapse Changed China’s Tech Sector: Right up until the moment his company imploded, Ofo founder Dai Wei insisted he was building a corporate empire to rival Google. The collapse of the Beijing-based startup, which just two years ago was valued at $3 billion, has been a catalyst for China's tech industry to undergo fundamental changes. Ofo's excessive focus on funding - like many Chinese startups - has been coined 2VC, rather than B2C or B2B, where founders concentrate above all in selling their business to venture capitalists. Last year, nearly 1/3 of global venture capital flowed into Chinese tech startups, up from just 4% in 2013.
Douyin in 2019: Latest Features and Trends: 49 minute podcast: Fabian Burn talks about better reaching more than 500 million Douyin users through new features such as photos, Tmall & JD testing native stores, wallets and red envelopes, improved AR filters, integration of the Duoshan messaging app, in-video shopping, mini-programs (most popular so far are mini- games) and the beta stories feature. Shifts in content include short web series, micro vlogging, real and relatable and more series-type content to get viewers coming back. There are now 150K official brand accounts on Douyin.
Tencent’s WeChat Blocks Learning Apps from Incentivising Users to Spam, Saying it Breaks Rules: Earlier this month WeChat released a statement saying that programs and content accounts are prohibited from "luring" users to share their products on WeChat’s Moments. Examples of banned tactics include Mint Reading, an English-learning app that has gained a following by encouraging users to share daily progress on their WeChat Moments feed in return for incentives. In other WeChat news, the new Haowuquan "Goodies Circle" feature is WeChat's answer for Little Red Book, integrating product recommendations into a Product Moments-type feed and incorporating the function into search.
Cross-Border Ecommerce (CBEC) Regulations for Chinese Consumers: China's popular cross-border ecommerce has previously been relatively unregulated, yet new laws from January this year provide clearer rules. Good purchased must be included on the Goods List and either the transactional, payment or logistics electronic information must be able to be cross checked by China's customs authorities or the postal/delivery service must do this and assume corresponding legal liabilities.
Food & Beverage
Justify the price: Nongfu Spring Reveals Tips for Manufacturers When Selling Plant-Based Yogurt in China: Brands need to explain why plant-based yogurts are priced higher than animal-based yogurts when selling in China due to a lack of consumers’ understanding, according to insights from Nongfu Spring. Overseas consumers "appreciate plant-based yoghurt for its low carbon footprint, environmental friendliness and health benefits" but Chinese consumers are not persuaded by these reasons.
China is a Nation of Tea-Drinkers, but Coffee is Taking Off: Although there is a lot of hype around roasted coffee in China with Starbucks, Luckin, Costa and Tim Hortons, and the market is growing 10% a year, the average Chinese still only drinks five cups per year - just 1.3% of the amount consumed by the average Japanese or American. Yet, while mainstream cheap coffee is on the rise from brands like Luckin, independent coffee shops are springing up, at which preparation of the drink is taken to artisanal extremes - an estimated 200 small coffee shops are in Chengdu alone. No longer are whipped cream and sweet sauces essential.
Entertainment
Micro-Influencers From China Are Buying Their Way Onto The Cannes 2019 Red Carpet: Cannes has reportedly “become a Chinatown” this year due to the perplexing presence of no-name Chinese influencers. “A group of self-proclaimed celebrities hijacked the festival,” paying as much as ¥200,000 ($28,935) for a spot on the red carpet through the thriving black market of agencies in China selling tickets.
Sport
The Next Tennis Superstars Will Come From China, Sharapova Agent Says: IMG, the sports agency that helped get endorsements for tennis champions Roger Federer to Maria Sharapova says China is poised to produce a wave of new stars. "In 10 years, you’re going to see the most ever Chinese players in the top 100, especially on the women’s side". While tennis players who can win regardless of nationality, when it comes to endorsements, being from a massive consumer market makes a big difference. IMG client Li Na broke a path in endorsements as the first player Nike allowed to wear brand patches on her sleeve, a concession that helped the Chinese champion rack up more than $43 million in deals. Li retired in 2014, but earned as much as $18 million on endorsements last year.
Education
China’s Brightest Are the Trade War’s Latest Casualties: A record-breaking 8.34 million Chinese students will graduate from university this year - up from around 3.5 million 20 years ago. But more of those graduates than before will face unemployment or underemployment. During the first three months of 2019, the ratio of job vacancies to job seekers declined to 1.68, from 2.38 in the fourth quarter of 2018. Zhaopin.com, China's leading online job recruiter, reported that its number of job listings declined 7.6% during the first quarter, while applications increased 3%. Many are ditching the dream of working in one of China's big cities for lesser-paying careers in smaller metropolises, where local governments are subsidizing housing and other expenses for transplants. Others are going back to school: A record 2.9 million people took China's graduate school entrance exams in December, up 21% year-on-year.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
