Avoid Being Mislead by the Fake Data in China
Marketers, sales managers, product developers and strategists the world over are increasingly using data to help form decisions. Fortunately in China, we have a greater depth and breadth of data than anywhere else. Not only do Chinese use their smartphones (and faces) more frequently, across a broader array of online and offline occasions, they are also among the least concerned about data privacy globally. China Skinny uses our own in-house tools to tap into China's vast banks of data to provide macro and granular views of consumers' preferences and trends. These can impact everything from communications, branding and product development, to the channels and influencers you use.
However, just blindly using data to drive decisions can be reckless and is often misleading. For a start, data can miss the emotional drivers that influence decisions - these are becoming increasingly relevant as branding and premiumisation gains importance. More importantly, data can be misleading due to the likelihood of your data being skewed by fakes.
Nearly a third of China's internet traffic last year was rated "abnormal" according to a report by third-party advertising data monitor Miaozhen Systems. The resulting loss to advertisers alone reached more than ¥26 billion ($3.75 billion). Virtually every corner of China's internet that boasts massive user numbers has developed a shadow ecosystem of fake engagement. They are trading money for clicks, followers, commenters and buyers. Late last year Alibaba estimated there were at least 2,800 organizations in China specialising in faking ecommerce activity alone.
Zombie Weibo followers usually go for ¥10 ($1.44) per 10,000 followers, although for a higher fee, brands can engage "advanced zombies" with avatars and content expressing fake opinions. Of real concern is that it isn't just your fly-by-night operations buying fake engagement in China; many of the best-known brands have engaged with fake social media likes, forwards and comments to bolster their impression of popularity. This taps into the tribalistic follower tendencies of consumers.
Arguably China's most in-demand KOL, pop star Cai Xukun, clearly creates millions of fake engagements to fuel his popularity. He isn't alone. Around 70% online celebrity peers are estimated to forge their fanbase. Last year, Chinese state media CCTV reported that 90% of views generated by many popular shows on video sites are fake. On ecommerce, the long-used method of "brushing" remains common where brands ship empty parcels to bolster their sales numbers and positive reviews on ecommerce platforms.
In addition to the ill-gotten gains for brands and KOLs, China's big tech platforms themselves often see opportunities in the fake economy. It is well known that ecommerce platforms engage fake sales - or do little to stop them - to artificially inflate sales numbers, drive buzz and attract investment. In the build-up to its IPO, popular 'user-generated' travel site Mafengwo has been tacitly allowing registered merchants to place fake orders in order to beef up their onsite rankings and attract more views. 30% of all orders on Mafengwo are estimated to be fake.
Data is a powerful tool to provide clues and clarity into China's complex marketplace, yet brands should caution from using that data as gospel. In most projects we do, China Skinny cross references data with other sources of insights to ensure its robust and reliable. We'd suggest you do the same.
On a more wholesome note, if you're in the food and beverage space, book yourself a flight to Melbourne on September 3-6 for the prestigious Global Table event, focusing on solving our biggest food challenges and creating tomorrow’s breakthroughs. China Skinny's Mark Tanner will be giving the opening presentation for the China section, discussing China beyond 2020. More information here. Please let us know if you'll be there, it would be great to have a chat.
Here are this week's news and highlights for China:
Chinese Consumers
What’s Driving Coca-Cola’s Growth in China?: Coca Cola came from nowhere to take out the fastest growing FMCG brand in China in Consumer Reach Points this year according to Kantar. Coca Cola picked up significantly more consumers who were allured by sugar-free cokes and newly launched Coke Fibre Plus products. Smaller packages of conventional Coke generated enough growth to offset the decline of bigger packages.
Digital China
In Depth: The Fake Engagement Powering China’s Internet: Nearly a third of China’s internet traffic in 2018 was rated “abnormal,” resulting in losses to advertisers of more than ¥26 billion ($3.75 billion).
Why was Little Red Book Pulled from China’s App Stores?: Popular app Little Red Book (Xiaohongshu) was pulled from Android app stores due to Government intervention resulting from complaints about the platform facilitating the sale of restricted, forbidden, and fake products. These products include tobacco, e-cigarette products, and medicinal products such as skin-injection kits from third-party sellers on the platform. Little Red Book has struggled to monitor its three billion pieces of content, 70% of which is user-generated.
China's Top Live Streamer Viya Sells NZ$30 Million ($19 Million) Worth of New Zealand Product in Hours: KOL Viya livestreamed from Auckland to almost 10 million Chinese viewers on Taobao, who collectively spent ¥134 million ($19 million) in four and a half hours. The livestream featured an alpaca, haka and more than 40 New Zealand and Australian honey, dairy, skin care, duvets and cereal brands. Last year Viya generated sales of $2.7 billion from her live streams on Taobao.
Is WeChat’s Growth Over?: Although Tencent's WeChat users grew 3.2% between December 2018 to June 2019, it wasn't enough to compensate for the 8.4% drop in usage over the six months - from 35.4 to 32.4 hours/month. The bright spot was time spent on WeChat Mini Programs, which grew 23.3% to 64 minutes a month. Mini Programs had 746 million monthly active users. Tencent still dominates time spend online in China, however it total share of time spent dropped 3.6 percentage points to 42.3% for the year ending June 2019, mainly due to competition from ByteDance's Douyin and Toutiao which grew from 10.3% to 11.7% and the rise of diverse apps, which grew from 26.3% to 29.7%. Baidu dropped from 7.5% to 6.3% and Alibaba held firm on 10.1%.
Alibaba to Buy Kaola Unit From NetEase for $2 Billion: Widespread reports claim Alibaba is paying $2 billion for NetEase's cross border ecommerce platform Kaola to merge with the Tmall Global platform, although a Tencent news article (in Chinese) yesterday afternoon claimed NetEase CEO Ding Lei vetoed the transaction. In 2018, Kaola accounted for 27.5% of China's cross border market, ahead of Tmall Global on 25%. The comes off the back of Alibaba's 42% increase in revenue for Q2 suggesting Chinese consumers are still spending. 674 million annual active customers now use its retail marketplaces, 20 million more than a year ago. JD also had a strong quarter with revenue up 22% and annual active customers growing almost 11 million to 321.3 million.
Baidu’s $66 Billion Dive Knocks It Out of China’s Top 5 Internet Companies: NetEase has knocked Baidu from China's top-5 largest tech companies after its shares grew 11% this year, while Baidu's plunged 40%. Last week ByteDance launched a new search engine, Toutiao Search, which also impacted Baidu.
Chinese Tourists
Fake Orders Boost Major Chinese Travel Site in Run-Up to US IPO: Sources: Mafengwo touts user-generated reviews of restaurants, hotels, destinations and local activities, allowing free independent travellers to better plan their itineraries. However, it tacitly allows registered merchants to place spurious orders to beef up their onsite rankings and attract more views. Since late 2018 Mafengwo has turned a blind eye on fake reviews and orders - incentivising merchants to have higher conversion rates as they will rank higher. 30% of all orders on Mafengwo are estimated to be fake, versus 10% on competitor site Feizhu/Fliggy.
Food & Beverage
VeChain Tapped to Provide Transparency for China’s Wine Trade: A blockchain-powered wine traceability platform now oversees 20 wines in Shanghai's Free Trade Zone, with Penfold's Bin 407 being the latest wine to be registered. The company behind it, DIG, claims a 10% increase in sales for vintages tracked by the platform.
Why are China’s Super-Rich Excited About Buying Up Vineyards in France?: Chinese investors have bought about 175 Bordeaux wine estates since 2010. Purchasers typically fall into three investor types: those already in the alcohol or hospitality business seeking to control their product supply; those who recognise that China represents a vast new market for wine demand; and finally, those that love wine and its lifestyle and wish to diversify into Euro-backed assets.
Sport
Li Ning Profit Up By 196% as Restructure Pays Off: Li Ning, 'China's Nike', saw revenue grow 33% on the back of upgrading and adding stores, refining its product offering and reorganising its supply chain. The rise of fitness and Chinese brands has also contributed to the strong results. Li Ning's new branding and design strategy integrates Chinese elements with their own 'sports genes'.
Entertainment
Inside China’s Global Entertainment Ambitions – and What Might Get in the Way: China now boasts more than 60,000 movie screens, almost all built in the last 10-years. Over 90% of tickets are sold online. While the mainland may be quickly gaining on the US in moviemaking hardware, a talent and experience gap in screenwriting and production remains, creating a continuing need for Hollywood’s superior know-how. In March, authorities ordered filmmakers to turn the country from a “big film power” into a “strong film power” like the US by 2035, and to develop 100 movies a year that earn more than $15 million each. Movies in China must laud the party and also make money, which is extremely hard. All but two of China's top-10 grossing movies were made in China, including two HK co-productions. They have all been released in the past three and a half years.
Pets
China’s Copy Paste Pups: Sinogene, a biotech company in Beijing, entered the pet cloning market last year, reproducing pooches at about half the previous $100,000 price tag. China's dog owners spent ¥106 billion ($16.5 billion) on their estimated 50 million pets in 2018, a 20.5% year-over-year increase, and have spawned such lavish amenities as pet hotels and pet funerals. From 20 cloned dogs in 2018 and 20 more orders in the first quarter of 2019, Sinogene hopes to grow to duplicate 500 dogs annually within five years. It is also developing more “biotherapy” products for pets.
Education
These 10 Universities Produce the Most Ultra-Rich in Asia Pacific: Just two Mainland Chinese universities made the top-10 universities in Asia Pacific for ultra-wealthy alumni - those with a net worth of $30 million or more: Tsinghua at number two with an estimated 1,090 alumni and Peking at third with 905. Australia had the highest number of universities in the region with four making the top-10. US universities still produce the vast majority of the world's wealthiest grads.
That’s the Skinny for the week!
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