Social Ecommerce: The Future of Online Shopping is in China

Guest post: Olivier Verot has been living in China for almost 8 years and founded a digital strategy agency specialized in the Chinese market. 

With 24% online sales growth in 2018, and a total revenue of 1.3 trillion dollars in 2018 (National Bureau of Statistics of China), China is the fastest growing online market of the World.

When Facebook was launched in 2004 and started being more and more popular, China decided to build its own digital ecosystem, instead of relying on the American ones like Twitter, Instagram, Google, YouTube, Amazon, etc. Since then, the Chinese Digital Sphere is developing new technologies and adapting to users’ behavior to optimize their experience as well as the revenue of the platform.

Another characteristic of China is the number of people using the internet: at the end of 2018, they were 829 million users.

Moreover, among these users, nearly 871 million use the mobile channel for their web activities. In China, the mobile is the channel most used by the Chinese netizens. This is due to the democratization of smartphones (that are very affordable in China) and the development of payment via phone (WeChat Pay and Alipay in particular). This trend is much less common in Western countries (almost non-existent).

Where are these developments from? What are the applications that leveraged this evolution? The main result of these radical changes is the appearance of the social e-commerce.

What is Social E-Commerce? 

Social e-commerce is a mix between a social network and an online store. It’s a great way to combine the engagement of a social network with the efficiency of e-commerce. In this sense, some applications have become platforms offering a wide range of services where social life and the act of purchase are linked.

Why is this new trend a success in China?

Because Chinese people tend to lack confidence and trust in the brands. This is due to repeated scandals and numerous counterfeits available for purchase in the country. In addition, the omnipresence of advertisements in all forms of media (billboards, videos, social media ads, flyers, etc.) is making traditional marketing methods ineffective.

Thus, the Chinese tend to turn to people or entities of trust. Among others: their families, their friends, their work colleagues. More recently, KOL (key opinion leader) has developed into a real trusted figure for Chinese users. KOLs are digital influencers. They are known for a particular style, a special hobby, and most importantly the ability to grow a community on social networks. They most of the time have a cool personality, they are attractive, funny, smart, … They are very committed to their community that follows them for their authenticity, the trust they have in them and their common interests. Therefore, the Chinese users often turn to their favorite KOL before making a purchase, and they will be more inclined to buy something if their KOL has already tested and approved the product or service.

In this context, Chinese users are turning to social networks to access product reviews, "unboxing" videos and photos that allow to get the first impressions of their peers on a product directly after opening it. What is the benefit of these social networks? Without a fuss, they promise an entertaining and enjoyable experience. In addition, the development of mobile payment technologies (such as WeChat and Alipay) allows users to pay in one click instead of having to type all the numbers of their credit cards on a traditional Western platform.

Xiao Hong Shu: The Leader of Social Commerce

Founded in 2013, Xiao Hong Shu or Little Red Book is a social commerce platform that looks like a mix of Instagram and Pinterest platforms tailored to e-commerce use. Today the platform has more than 150 million users including 30 million daily active users.

The platform describes itself as: “a sharing platform for young people’s lifestyles throug deep-rooted UGC shopping sharing community”. The community of Xiao Hong Shu is mainly composed of women (85%) and relatively young (since 84% of them are under 30 years old). The Chinese Millenials are the main target of the brands that created their e-shop on Xiao Hong Shu, these young people have a different way of spending their money compared to their parents, they tend to choose more qualitative and luxurious products. In this the post on Xiao Hong Shu are ideal because they allow to post pictures that catch the eye but by clicking on them, the posts look almost like articles with an in-depth review and create a trust worthy feeling that makes the user more willing to purchase it.

The most popular products on the platform include: travel, fitness, fashion, snacks and products for mom and baby.

How can brands benefit from Xiao Hong Shu?

1# Content Marketing

The platform is content-oriented, so it is important to work on the texts, images, videos, etc., basically any content that will be published should be well prepared and precise. Xiao Hong Shu does not allow brands to buy ads, and campaigns with KOLs are very limited, it is important that the content is informative, creative and offers something new to users, if it is primarily commercial, the effect will be negative.

2# Create an official account and E-shop

To get the most out of Xiao Hong Shu, brands can create their official account to share their own content and then create their e-shop to allow users to buy products directly from the app.

3# KOL campaigns

If they should remain occasional, KOL campaigns remain a great way to communicate about a brand on Xiao Hong Shu. They will increase the reliability of this brand and the desire to get one of its products. In addition, KOL are social media professionals and know their community, so they will be able to provide targeted content tailored to the target of the company.

How’s Xiao Hong Shu a great marketing/sales tool? 

The major advantage for brands is that the application provides insights into trends in their
industries and desires that grow in consumers. What are the new demands, the new needs?
And thus, allow the companies to adapt their product development.

The platform is also a good tool for dialogue with the brand’s community as well as potential customers, the distance between the customer and the company is reduced, it creates confidence between the two parties and therefore boosted sales. Finally, creating campaigns and making online sales on a platform like Xiao Hong Shu makes it easy to evaluate the number of engagements and reaction to content, or a product. The number of clicks, comments, followers makes it possible to have a clear idea of the return on investment made by the company.

Thus, social e-commerce is developing strongly in China, it offers significant potential to companies that want to establish and represents a model towards which Western platforms will have to adapt in the years coming. This will require moving from a strategy very focused on physical retail to a digital strategy that will require a good mastery of the tools of these e- commerce platforms and various social networks.

Behavioural psychology > Cosmetic changes

Behavioural psychology > Cosmetic changes…that’s what a new report on Ecommerce by Qubit claims. Now, the company it has to be said has somewhat of a play here selling behavioural technology. According to the company, “Qubit’s technology prioritizes the biggest opportunities for revenue generation so you can deliver personalization that makes an impact”. Yeah.

Regardless of this, the report itself is well worth your time. *Spoiler Alert*…these were the key findings in order of importance:

  1. Scarcity
  2. Social proof
  3. Abandonment recovery
  4. Product recommendations
This figures; some of the most successful ecommerce stores are classic examples of these e.g. Amazon’s product recommendations. Perhaps but not totally unsurprising is scarcity – this very concept is winning offline (Zara, HM etc). What’s worked for your ecommerce store? Let us know in the comments.

One Brand to Rule Them All

Six years after purchasing the competing online retailer for $545 million, Amazon is shuttering Quidsi, citing struggles to make the unit profitable. The decision will affect about 263 jobs in New Jersey, where the company is based, according to Bloomberg.

Quidsi is the owner of Diapers.com, Soap.com, Wag.com, BeautyBar.com, Casa.com, and YoYo.com. Its founder, Marc Lore, begrudgingly sold to Amazon amid a pricing war. He went on to found Jet.com and sold that to Walmart, where he now runs e-commerce. Read more from Bloomberg here.

It’s commonly accepted in bricks and mortar retail that to capture as much market share as possible, multi-brand formats are required. Retailers in fashion (Zara and HM) or grocery (Walmart and Tesco) operate under numerous brands whilst utilising a common backend infrastructure in product, warehousing and logistics. So, how about E-commerce?

Well, Amazon’s strategy of operating under the Amazon banner might be a hint at what’s to come. The marginal cost of software has perhaps fooled companies into a broader brand portfolio when in fact, it pays to be singularly focused on your flagship brand. After all, even if you continue to operate multiple brands, applying the 80:20 rule, it’s usually that one flagship brand that makes the vast majority of revenues/profits.

What do you think? Should you put all your resources behind one brand or spread risk and capture market share with multi-brand? Let us know in the comments.

Taking your first steps in China? What makes this market unique?

The Chinese market place is, in my humble opinion, the most fascinating in the world. I have had the pleasure of working in and studying this digital eco-system in China for a number of years. For western businesses looking to expand into the most lucrative [in terms of sustained return on investment and lead generation] yet different marketplace in the world it is important to understand what makes it so unique and why..

China is contradictory in many ways, the country has opened up to foreign investment and business opportunity like never before yet still remains a very separate and distinct proposition for business.

In China digital is king

In China EVERYTHING is now digital. The digital revolution has been unprecedented in the last decade and now become the absolute norm. The country boasts a 58% internet penetration rate which is expected to grow to 65% by the end of 2017. This is relatively low compared to many countries in the world but consider China’s population of 1.4 billion, this therefore equates to 800 million netziens.

Consumer culture is increasingly orientated around digital engagement, online to offline, and e-payment. The growth of Alibaba, WeChat and Baidu as the key online giants has helped facilitate such consumer trends.

You don’t need to spend long in China to realize the prevalence of digital. Chinese citizens are glued to their smartphones, in-fact, latest figures show there are approximately 550 million smartphones in China. Even physical adverts [without exception] embed QR codes into the images whilst e-payment in stores via Alipay or WeChat has become common practice.

The digital advertising and marketing industry is worth $320 billion in China, the future is digital. But so is the present. You have to understand that whilst offline methods still exist they are old news, you have to be where your target market is, and that is online on search engines, e-forums, social networks.

The key fact to digest is the scale of China’s internet penetration, typically it was the east coast of the country with the largest 1st tier cities that had the largest online communities but of course most of the population of China live in  tier 2 and 3 cities, the growth of internet access here is increasing at the fastest pace, in part because of the success of Alibaba’s e-commerce infrastructure.. but more  on this later.

The market is different, Chinese platforms dominate.

The market developed under a unique and different set of conditions. What you have in China is effectively a closed intranet, rather than the open source web we are used to. The online sphere has been shaped by state regulation, policy and Chinese cultural trends. This has produced a market place where Chinese, home-grown platforms dominate. State regulation shut western competitors such as Facebook, Google, Youtube etc out of the largest market in the world, in this vacuum Chinese specific adaptions evolved to cater more specifically for the Chinese user. Instead therefore we have WeChat, Baidu and Youku.

Western brands, products and services need to utilize this Chinese infrastructure for growth in order to succeed.

Chinese platforms are world leading

Chinese platforms are not just unique but also world leading, innovative businesses in their own right. They may have started out as western ‘copycats’ but have now evolved into very different, multi-faceted creatures.

Baidu is the largest search engine in China with 70% of all online research conducted here. For any business a strong presence on Baidu is vital but takes time as you need to appear in the natural results based on Chinese keyword searches. Baidu’s intelligent system named ‘the spider’ prioritizes websites hosted on a local server which are optimized for Mandarin character searches. Like Google, the engine rewards fresh content and backlinks from other sites to increase visibility in the search results.

Baidu are investing heavily in virtual and augmented reality with aim of incorporating this into their searching services as well as facilitating their wider uptake and commercialization in Chinese society.

WeChat is arguably the most integrated platform in the world with 750 million active user accounts. It is designed as a ‘one stop shop’ for everyday life with a host of their own and third party apps on offer within the network. WeChat functions as a browser, app store, instant messenger, is used for sharing video’s and pictures, a taxi ordering application, voice messaging, an e-payment system as well as providing services in dating, financial investment and geo-mapping location.

Weibo (akin to Twitter) is a micro-blogging platform with 250 million users. Users can see posts from anyone, they do not have to be connected first. This makes it an ideal place to work on branding or for spreading a message with articles often the subject of posts. User interactions remains high on Weibo with posts up-ranked based on the number of likes and comments from the community. If content is going to go ‘viral’, it will most likely be on Weibo. Many online influencers and celebrities also use Weibo as their main network for posting and interacting with followers.

In China you have to start over again.

Regardless of your status outside of China, because the internet has been ring-fenced, you need to build a reputation and visibility from scratch to generate leads. Baidu, the largest search engine presiding over 70% of all online research, is based on Mandarin Character keyword searches, English optimized keywords are redundant.

This does present a great opportunity too, the barriers for entry also result in fewer international competitors, and this is what sets you apart. Being first to market in China is vital, I have seen time and time again that, if you brand yourself and grow your online presence ahead of the competition you are far more likely to succeed.

Everything moves fast

In China everything moves quickly, part of the frantic pace of modern life as the country hurtles into the future. This results in large scale investments and innovations being made quickly and decisively. You need to move fast to get ahead of competitors. Take the ‘mobile biking revolution’ as an example. The leading player is ‘Mobike’ who launched an app where you scan their branded bike to start riding and scan to finish, leaving it wherever you want. Using mapping services users can locate the nearest bike. Mobike launched and within two weeks had placed over 30 000 bikes in the first tier city centres. The app launched and within a single month boasted over 200 000 registered users. Digital growth is fast paced, decisive and exciting..

The behaviour of Chinese online

Chinese ‘netziens’ are arguably the most engaged online users in the world. They spend on average a whopping 2.5 hours per day online. 1.5 hours of this is spent on social networks. The Chinese user see’s the internet as their greatest resource for researching, and this is their key trait, the Chinese research online like no other nation.

This is due to a number of factors. Many Chinese have been cheated or let down by poor quality products and services. This makes them more discerning in their purchasing habits and sceptical of new brands without a reputation.

The other factor is that Forums remain wildly popular, in search engine results forums will often appear above an official website. The ‘forum’ is unfashionable now in the west but remains vital to any marketing strategy in China. I would suggest this is due to the Chinese reliance on peer based reviews and shared opinions, perhaps because of their more collectivist nature.

The importance of mobile

There are now 550 million smartphones in China. This is because of mass market, affordable models from brands such as Vivo and Xiaomei. It has led to a mobile-centric digital market place and underscores the importance of mobile optimized content, app development and mini-sites.

Mobile has produced a type of ‘on the go’ engagement. WeChat was built as a mobile app with users spending an average of 1.5 hours a day on the platform. This is because of this culture of instant gratification, frequent usage and mobile interactions.

With the dominance of smartphones comes the proliferation of apps. The largest app store is Tencent’s ‘My App’ with a 24% market share, in second is ‘360 mobile assistant’ with a 16% coverage. WeChat are also launching their own internal app store which will tap into their 750 million active user accounts.

E-payments

E-payments are the norm in China now. The largest third party payment app is ‘Alipay’, part of the Alibaba group. Users can simply scan a QR code to make instant payment from their e-wallet, this is linked to their banking. E-finance services have developed with users able to transfer funds to each others accounts, make investments and manage accounts. WeChat also launched an e-wallet service to compete with Alipay.

‘Hongbaos’, the traditional red envelope given at important Chinese festivals and life events, has now been updated in our digital era. E-wallet services allow users to send and receive hongbaos with either a fixed or random allocation of money inside. Alipay spent millions in offering ‘lucky dips’ on red envelopes to incentivize users to give digitally. The search for envelopes has even been integrated into the physical environment with new Augmented Reality based games, users through geo-location services and their camera on a smart phone can find and open envelopes. Think ‘Pokemon Go’ but there is a financial inventive.

QR Codes

QR codes really took off here and have created strong opportunities to drive traffic from offline to online. By scanning a code, users can be linked to a company website, wechat page or some specific content. QR’s are now featured on most ads, in magazines and newspapers and on physical products. This highlights the nations pre-occupation with digital engagement. It is commonplace to see someone scan the code from an ad in a metro station because this links to the bulk of the content. The take home message is that even with offline activities, the main goal is to drive the prospect online, especially as paying via digital wallets is the best and easiest method for payment.

 

China is a fascinating market, especially because of its uniqueness coupled with its profitability. Nowhere else on earth will you find a closed system with such a vast user uptake of digital services and as a passionate marketer this captivates me.

Benji is a digital marketing specialist focused on the Chinese market, for more information see his blog and website here.

Amazon Starts Prime Service in China. Competition For Alibaba?

Amazon.com have now started offering their prime free-shipping service in China, ratcheting up their attempts to compete with Alibaba Group Holding Ltd. for the increasing number of shoppers desiring overseas products.

Chinese Prime subscribers will now be eligible for free shipping on orders exceeding 200 yuan ($29.50) on millions of overseas products, the company said in an e-mailed statement. Domestic goods will also be delivered free with membership costing 388 yuan a year, lower than the U.S. fee of $99.

This is a strong move and incentive by Amazon China for Chinese consumers. It is indicative of the demand for western products online in the Middle Kingdom, the market is so lucrative that Amazon can still find room to compete with the e-commerce behemoth that is Alibaba.

Amazon, which has so far made little headway against Alibaba, is focusing on the demands of a growing middle-class whom are seeking better high quality goods from abroad. Amazon as an American digital platform are well placed to emphasize the authenticity and quality of the products from outside of China’s borders, this will help them stand out in a market flooded with counterfeit, fake products. The target market for Amazon is the more discerning, wealthy Chinese consumer.

Amazon’s global logistics network will manage shipping and final delivery to Chinese customers. Packages are estimated to arrive within five to nine days in 82 cities across the country, with single orders of more than 2,000 yuan requiring additional time, the company added.

Amazon must utilize the extensive and increasingly developed infrastructure across China for delivery whilst focusing predominantly  on the east coast where the most developed cities (Guangzhou, Beijing and Shanghai) and the majority of the population live. Large 2nd and 3rd tier cities are also important as the road networks continue to improve for e-commerce delivery.

Amazon will have a fight on their hands to build up a significant presence and compete with the domestic Alibaba, they have to understand the market and different behaviour patterns of Chinese consumers in order to tailor and attract them to their e-commerce platform. It will be interesting to track their development in the future.

 

Benji is an e-commerce specialist based in Shanghai, China. For more information see his blog here.

 

 

 

Amazon and Walmart Face-off

It looks like the big two in retail, Amazon and Walmart, are going to collide both online and offline. Following the Jet.com acquisition, Walmart are talking up future ecommerce initiatives and their impact on the stores business.

Likewise now Amazon plans to more aggressively get into physical retail as noted by WSJ.

With curbside pickup, Amazon will have to contend with Wal-Mart, which plans to bring the service to nearly a quarter of its roughly 4,600 U.S. stores by the end of next year, executives said on a conference call last week .

So will Walmart’s physical competency beat Amazon’s digital expertise? Time will tell but if you were to bet on anyone you’d be hard to bet against Amazon. The digital pie is growing and the market already says Amazon’s future earnings will continue to rise. The same can’t be said about Walmart, especially when you consider the customer base that was built on the middle to lower class is stagnating.

Should be fun to watch.

Dollar Shave Club

Stratechery has a nice piece on the Unilever Dollar Shave Club purchase. Noting something we also discussed with respect to FMCG:

I suspect this sort of disruption will not be a one-off: the Internet (and e-commerce) has so profoundly changed the economics of business that it is only a matter of time before other product categories are impacted, with all the second order effects that entails.

Read the piece here.

Offcourse whilst it’s a good deal for founders and investors, it does raise concern as to why another pure-play ecommerce company could not reach the public markets.