One of China's Most Effective Marketing Channels: Ecommerce
We hope you had a great Dragon Boat Festival. Billions and millions are numbers that we often hear associated with China's ecommerce market. Whilst impressive figures, for many of us they are just lots of zeros with little context. To bring some perspective to the enormity of online shopping in China, eMarketer have forecast that China will account for 50.7% of ecommerce sales globally in 2017 - more than the rest of the world combined.
Whereas online sales volumes hog the limelight, ecommerce remains very valuable for another important discipline - marketing. Long time Skinny readers will appreciate the importance of this as we've been suggesting this for some years now. We also predicted that widespread use of ecommerce as a marketing channel will be one of the big trends for 2017.
But don't just take our word for it. Earlier this month PwC published the global Total Retail Survey which reinforced the importance of branding and product information on online shopping channels in China. The survey found that 61% of Chinese consumers start their product searches on ecommerce platforms.
The survey also highlighted the importance of integrating other marketing channels. 70% of Chinese consumers use social networks as a source of inspiration for purchases, with 29% of consumers (versus 13% globally) using it to see what brands key opinion leaders are endorsing. Coupled with other tools such as live streaming, China’s ecommerce market is increasingly being driven by content-led experiences, with less focus on price.
Foreign brands trying to compete on price on Tmall or JD are following a dangerous path. Whilst there needs to be an element of consumer gratification from the sense of getting a deal, you will never beat a Chinese vendor on price in the long term. When most local vendors are becoming established they'll happily live with Ma and Pa or in a bolt hole above their storage locker, eat cheap noodles and not have a network of importers, distributors, sub distributors, TPs (Taobao Partners) and agencies pushing up fixed and variable costs.
This lean ethos will usually remain with Chinese vendors long after they become multi-million dollar companies. Lowering your price too much can not only be ineffective in the long term, but can have devastating effects to your entire ecosystem and image as Australian infant formula brand Bellamy's discovered. Chinese consumers are increasingly prepared to spend more on quality products online with the portion of high- and middle-end product sales growing by almost 50% since 2012 according to Alibaba. Take Mengniu milk for example: its Deluxe milk is almost twice the price of its plain milk on Tmall, but the pricier packs sell 53% more in volume.
Fortunately the evolution of ecommerce and social marketing, coupled with a more sophisticated consumer means foreign brands can capitalise on the quality of their products, coupled with smart marketing, to have a distinct advantage over the guy munching noodles in a locker. Agencies such as China Skinny can assist with that.
On the subject of the ecommerce opportunity in China, China Skinny's Mark Tanner will be discussing this at the Global Ecommerce Summit in Barcelona June 12-14. If you are there, please pop by and say hello.
Here are this week's news and highlights for China:
Chinese Consumers
Chinese Shoppers Are Flush With Hidden Income and Ready to Spend: A new study into China's disposable income data claims citizens’ true spending power could be underestimated by as much as 20%. The official sampling doesn't reflect true investment returns, according to the government-backed Chinese Academy of Social Sciences. The survey comes at a time when Chinese consumer confidence is at its highest since 2014 and willingness to spend is the highest in at least 8 years according to Nielsen.
Home Equity Largest Part of Chinese Household Wealth: Report: China's average household wealth rose to ¥169,000 ($24,500) in 2016, 17.3% higher than 2015. Net worth of property accounted for 66% of the total, according to a report by Economic Daily research institute. On average, each family owned 1.04 homes with the value increasing 61% from the original purchase price. Almost all newly added family funds were bank savings with the top reasons being to cope with emergencies or medical costs (41.9%), pensions (35.0%) and children's education (33.6%).
How China’s Demand for Dining Options is Reshaping Mall Operator Strategies: China's 7.5 million restaurants are expected to expand by more than 4% next year - over double the rate of the AsiaPac region. Chinese social life revolves around dining - especially in cities - which translates to sharing meals with friends and family at restaurants and cafes. Mall operators are moving away from the traditional model of locating restaurants on upper floors as less important tenants. Attractive dining outlets is pulling traffic and some of the most innovative retail landlords are rethinking their layouts. 46% of Chinese consumers plan to spend more on food if their income increases, and 25% more on entertainment according to McKinsey.
Digital China
How China Sets a New Retail Normal: 70% of Chinese shoppers consider personalised marketing to be important for their overall shopping experience while 67% of Chinese consumers say their mobile phone will become the main tool to shop. 62% of Chinese consumers prefer to buy groceries online, almost three times the global average (22%). 93% of Chinese shoppers have purchased luxury clothes, shoes or leather goods online. 67% of Chinese consumers use smart devices to monitor eating and sleeping habits according to PwC.
US Dominates World’s VR Market as Chinese Consumers Yawn: US consumers accounted for 40% of the global VR market in the first quarter of 2017 according to Canalys. In rare move, Japan's growth to 14% knocked China to third spot as their share dropped to 11%. China has become the first country to introduce VR into private and public schools.
Why the Chinese Will Pay for Content That Americans Won't: Whilst people in the US believe content should be free, in China companies and individuals have managed to monetize smartphone apps, making money from news, entertainment, social media and live streaming. People directly pay for content through subscriptions costing around $30/year, 'tipping' and virtual gifts that can be exchanged for cash, meaning content creators rely much less on advertisers. This is why Apple's plan to disable the tipping feature on apps such as WeChat won't do their brand any favours in China.
Wearable Tech Latest Must-Have for China's Proud Pet Owners: Pet wearables like smart collars, leashes and feeders in China are estimated to currently account for 5% of the global $1 billion market. By 2024 it is expected to grow to 20% of the $2.5 billion market.
Food & Beverage
Food & Beverage Trends in China, Part 2: Premiumisation & Packaging: Some of the noticeable changes in China this year: Premiumisation and traditional distributors changing their approach to sales. Clever packaging solutions that address common Chinese complaints were also available.
Food & Beverage Trends in China, Part 3: More Diversity among Countries, The Rise of Local Players, Cartoon-y Branding and Copycats and Fakes: Following on from part 1 & 2, here are some of the bigger trends the Skinny noticed at the massive SIAL food and beverage fair.
Farming the World: China’s Epic Race to Avoid a Food Crisis: China is needing structural reforms to deal with their own food security. 93% of farms in China are less than one hectare; the average plot per worker is 0.5 hectares versus 156 hectares in Australia. Although it is still tiny, there is a new breed of tech-savvy Chinese farmers using drones and other cool technologies to turn things around. They are also looking beyond China, with Chinese firms spending almost $52 billion on overseas agriculture deals since 2005. Food industry-related transactions quadrupled over the past six years from Mozambique to Missouri.
Chinese Tourists
Chinese Tourists Ready To Go Off beaten Track: More than 420,000 Chinese tourists booked accommodation through Airbnb in the economies participating in the Belt and Road initiative in the past year, including Middle East countries. Over 60% travelling to the region are 30 or younger according to Airbnb. The most popular destinations among Chinese tourists aged 60 or older were Thailand, Singapore and Russia.
Chinese Tourists in Thailand, Vietnam ‘Dumped’ If They Shun Forced Shopping Trips, State Media Reports: Tourists who refuse to shop at set stores in Thailand and Vietnam can be left off the tour bus, or their windows forcibly shut and the air conditioning turned off. One common practice in Thailand is for Chinese travel agencies to attract tourists by offering extremely low priced or “zero dollar” tours and to sell on the tour group to local agencies in Thailand for ¥1,000 ($146) per head. The guides have to rely on commission from stores visited to cover the tour costs.
Luxury
Chinese Influencers are Proving a Hot Commodity Among Western Luxury Brands: According to an Alibaba report, Chinese superstar Fan Bingbing has generated $74 million in ecommerce revenue. Givenchy tapped China-born, New York-based Mr. Bags which helped sell ¥1.2 million ($175,000) worth of bags in 12 minutes after encouraging his WeChat and Weibo followers to shop.
Cars
The New Fashion Plate in China is Green: Teslas and other EVs are becoming a more common sight in China, helped by incentives such as easy access to green license plates in big cities. Of more than 250,000 people who bid in last month’s Shanghai auction for normal car plates, just 4.8% got one. 27% of Chinese consumers said they are willing to buy an electric vehicle this year compared to 14% last year and 1% in 2012.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
