Margin of Opportunity

What is the best way to increase your margins as a merchant? Sell your own merchandise. Quartz as an interesting piece on Amazon’s “secret” plans for private merchandise:

Trawling through over 800 trademarks that Amazon has either been awarded or applied for through the US Patent and Trademark Office (USPTO), Quartz identified 19 brands that are owned by Amazon and sell products or have product pages on amazon.com.

The key strategy behind private label brands is this however:

Perhaps what Amazon is trying to do as it rapidly expands into new businesses—especially business areas where it might not have forged partnerships with well-known brands—is to give the impression to customers that there are tons of options to choose from, when in fact, they’re really just choosing between different Amazon brands. “Consumers pay a premium for a brand, that’s why they’re not store-generic,” DiMassimo suggested.

Retailers have long adopted a multifaceted brand approach to retailing – think Zara plus Massimo Dutti, Oyosho, Bershka etc or HM plus COS, Cheap Monday or indeed pretty much any other major retailer these days. As above, it’s about generating margin whilst at the same time, presenting a feeling of choice.

Read the full piece

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.

Marketplace Sellers

Andy Geldman has written a nice piece on the third party marketplace seller. Increasingly, this is the way to startup online for a variety of reasons but in particular due to customer/traffic opportunities and things like third party fulfilment. The elephant in the space is offcourse Amazon though others are entering the space.

As Andy says:

Those sales are made not by Amazon themselves, but by more than 2 million independent businesses – businesses which are largely hidden from view.

Read more at Pulse

The E-commerce Subscription Model in China

Subscription based e-commerce platforms are a growing phenomenon in China. As cities become increasingly polluted and congested more Chinese consumers generally turn to online shopping. When you consider the size and scale of China it is unsurprising that the convenient online, subscription model is proving to be a success. 50% of the Chinese now have access to the internet with over 600 million potential online customers to target.

One company making waves in China with this subscription model is the ‘French Cellar’. For a monthly subscription fee they deliver premium, bio-dynamic, French wines selected by “Nicolas Rebut”, a prestigious sommelier, directly to the customer’s door.

In a nation where fake products are rife, the Chinese consumer wants to guarantee authenticity and quality. Therein lies the key appeal of a subscription model, the consumer can trust the quality and over time becomes loyal to the brand. It is also convenient as the selection is made by an expert, (China is renowned for many things but high quality wine is not one of them), and affluent consumers now expect the best from outside of the orient.

The whole process becomes more exciting and a surprise for the customer with lesser known yet prestigious wines being showcased. The concept has also proved popular in other Asian markets such as Singapore. In China the consumer is especially concerned with ‘keeping face’, they wish to present themselves in a positive light with greater specialization, quality and variety reflecting positively on the customer themselves.

This subscription model approach for high quality, niche, European products (that are a rarity in China) is set to become increasingly popular. This is potentially a very lucrative market for selling western products in the middle kingdom. Online shopping is in vogue in here with variations such as the monthly subscription becoming attractive to the wealth of middle/upper class Chinese consumers whom are more interested than ever in western cultures, in this case the refined wines that nations such as France produce.

Benji has lived and worked in Shanghai, China for 5 years and specializes in E-commerce in China. For more information see his website here.

Need to Sell Online? Try Facebook

Believe it or not, when you have an all powerful platform with millions of users (and billions in this case) you think you can do anything. Like Windows in the 90’s, Facebook is the platform of the moment and now they’re extending it further – this time into shopping. In their own words:

Marketers are challenged to reach their customers and drive sales on mobile. The majority of time spent on mobile is in apps, and people spend the majority of that time in just a handful of apps, including Facebook and Instagram.1 For people, the mobile shopping experience is often difficult to navigate. Customers can experience slow load times and too many steps on the way to checkout. This is bad for people and bad for marketers.

I would suggest this is something that actually they’ve been looking at for a while. Remember beacon? That ill-fated attempt to mix social and commerce? This is perhaps the second attempt and it’s probably a much better route i.e instead of mixing content and commerce, they’re essentially creating a marketplace like Amazon, eBay and so-on. So this should work; the question is, as a merchant should you use it?

Today we have two main platforms in the western ecommerce world; eBay and Amazon. Alibaba if you’re an Asia merchant. Those three have stood alone despite the rise of Pinterest, Wanelo etc that promise coveted direct traffic to your store and products. With Facebook, the question in my mind is; who owns the customer? If FB directs customers to your store this new initiative is in effect an advertising play. Intriguingly though, they tease more:

Over time we’ll explore incorporating additional content into this experience, such as items listed for sale in Facebook Groups.

This suggests they want to catalog inventory and act as a storefront themselves. Facebook could perhaps be the world’s largest store should they want it given the 1.3 billion plus people on the platform. Do they want that though?

Etsy IPO and What We Can All Learn

Etsy’s long awaited IPO is finally happening with the release of their S1 filing today. Surprisingly, unlike many of the classic ‘marketplace’ ecommerce companies like Ebay, the company is loss making:

The company registered a $4.9 million net loss on $108.7 million in revenue in 2014. The prior year, Etsy was actually closer to profitability, with a $796,000 loss

That aside, there are a couple of pieces of information related to marketing and loyalty that I’d like to point out and may be useful to you running an ecommerce business. First up, marketing:

We believe that the rapid growth of our marketplace is a testament to our compelling value proposition for Etsy sellers and Etsy buyers. Etsy sellers and Etsy buyers have been our best marketers, and the majority of our visits have come from direct and organic channels. Historically, we have invested relatively small amounts in marketing. We spent only $10.9 million on marketing in 2012 and only $17.9 million in 2013. In 2014, we began increasing our brand and digital marketing efforts and spent $39.7 million in marketing, up 122% from 2013.

In essence, let our customers market our company and our products. Easier said than done right? But it’s absolutely the right strategy to compete in today’s world where everyone is fighting for attention, just look at Apple. Yes, the iPhone maker spends a ton on marketing – especially traditional advertising like TV and print – and yet, look at their social media strategy or lack of it. The whole focus of successful companies like Apple and in alignment with Etsy’s marketing strategy is the notion that you both let (and encourage) customers to do marketing on your behalf.

Some call this word of mouth and more formally, ‘organic’ but whatever, it’s where you want to be. And on loyalty:

Our members’ repeat sales and purchases drive GMS growth. In 2014, 78.5% of our GMS resulted from repeat purchases made by Etsy buyers, and 99.3% of our GMS was generated by repeat sales made by Etsy sellers.

Over three quarters of sales from repeat customers; some would say this is a sign of a small customer base but remember what happened during the .com boom with all of those ecommerce companies who bought customers and lusted after those sales; they burned off course. You are far better off with a smaller, more engaged group of loyal customers. Amazon started with book buyers, Ebay with coin collectors, Netflix with DVD by mail and so-on – you want to start small and then grow horizontally into other categories or customers over-time.

Finally, if you’re wondering what the typical Etsy customer (aka ecommerce business) does, check out this graphic form the S1. You won’t be surprised to learn that the vast majority of time is dedicated to inventory – circa 70% in the Etsy seller’s case. The rest? Broadly split between marketing and administrative tasks. Running a company can be very exciting but much of time, it’s a case of getting your head down and working through the stuff that just needs to get done.