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.

3rd Party Brands Online is Almost Mission Impossible

The WSJ has another interesting piece on the hotly covered ecommerce startup Jet.com. If you’re selling third party brands online you’ll know this but if you’re thinking about it please read on:

Over the summer, the company said it would spend $100 million on ads in the first 12 months after the site opened. In the recent plan, that total had grown to nearly $300 million. The money is fueling television spots, subway posters and online ads—including nearly $10 million spent on Google in October, according to people familiar with the figure.

It takes $300 million to market a third party branded ecommerce website in 2015. Ouch.

Putting aside the fact Jet is a large, venture back outfit, the costs for any startup doing the same will still be very steep. This is what killed Webvan and caused the dotcom bubble. In essence, competition in ecommerce has the same economic factors as physical offline commerce. Sometimes people forget to be rational with customer acquisition.

So how do you compete other than paid media? One answer is social media aka word of mouth and arguably it’s is the best route to market today for online ecommerce startups. It’s also something Jet will be hoping to rely on in the future (as Amazon does) to avoid becoming another Webvan.

Often Overlooked But Massive: B2B Ecommerce

An article from WSJ highlighted the massive yet relatively overlooked world of B2B ecommerce. From the journal:

E-commerce sites that aim to help old-line industries find new customers, streamline sales and improve profit margins have proliferated and become among the hottest bets for venture-capital funds this year.

It’s important to remember that the world’s largest ecommerce company is not in fact Amazon or Ebay but Alibaba. Why is this important? Because Alibaba is largely B2B; connecting the myriad of Chinese manufacturers to the rest of the world has created a giant with a GMV of $250 billion in 2013.

Put simply, B2C is a big market but B2B is in another league. But that’s not all because B2B has been far less penetrated by ecommerce than B2C. By most estimates and unlike B2C, this is a market with lots of room to grow.

And here’s more reasons why it’s attractive to investors:

This is another reason that investors like these B2B e-commerce startups. Their spending on customer acquisition is only about 10% of that of e-commerce startups targeted at consumers, and their customers usually stick around.

Do you sell B2B? If not, why not?

10 important tips for e-commerce platforms on Baidu marketing in China

Understand Baidu

Baidu is the largest and the most dominant search engine in China. The influence of Baidu on the Chinese digital market is unprecedented. If you want to enter the Chinese market it is vital for any e-commerce platform to have a strong presence here.

Baidu is not simply the “Google of China”

If you want your e-commerce sit to be present on Baidu, you have to understand how it is works.  Baidu cannot in reality be compared to Google as it uses different searching algorithms and different systems. For example if you want to book a movie ticket on Baidu, you can even choose the specific seat, which you cannot do on Google. These additional services have contributed to the Chinese giant’s success.

More than a search engine

Baidu is offering multiple services including; “Baidu Baike” (akin to Wikipedia), Baidu Maps, Baidu Yi (a Chinese mobile platform) and ‘Baidu Tieba’  a popular social community where content is ranked, the higher the rating the more that content is shared and seen by the community (much like on Reddit).

Ad Space

Baidu TV is an established search engine advertising space for companies wanting to post their promotional videos on selected websites.

From PC to mobile

Baidu has expanded its market from PC to the mobile device by offering a wide range of functions and digital services on the smart phone.

There is certainly big potential for expansion in m-commerce.

Baidu’s display

On Baidu, there is an interesting way to promote a brand. Baidu attracts more customers by offering a creative display for brands with pictures, videos, and interactive content. For example if you search for cosmetic brands such as L’Oreal you will find pictures of many featured products alongside the usual search results on the first page.

Chinese domain

Baidu is a website that is hosted locally so it can be wise for companies to have a local domain with .cn. This way, it will be easier to rank highly on Baidu and to generate more traffic in China.

Chinese keywords

If you have a Chinese version website, it would be interesting to use Chinese keywords in your SEO strategy. You can easily translate the keywords that you have in Chinese.

Content

Be careful about the content on your website. If you share or feature content that is deemed to be inappropriate by the Chinese government, your website might be taken down or restricted from Baidu.

Avoid JavaScript and Flash

Baidu cannot interpret your JavaScript pages, you should use alternatives or non JavaScript pages for your website. The same goes for flash, Baidu cannot feature your flash contents, so better avoid it.

Benji is a digital marketing specialist based in Shanghai, China. For more information see his marketing website and blog here.

Five Key Features of Chinese E-commerce

The E-commerce sector in China is an incredibly lucrative one. An internet penetration rate of just under 50% results in 600 million Chinese citizens having access to the internet. E-retailing is therefore a key opportunity for western brands who can establish a presence in the mysterious orient without having to physically move operations here. With the large potential consumer base coupled with the relatively low costs of operating online, this is a significant opportunity for western brands.
Here are five unique features of Chinese e-commerce.
China is the largest market for e-commerce in the world
Forbes reported that in China “the e-retail market is estimated to grow to over $1 trillion by 2018”, it could therefore become larger than the e-commerce markets of the U.S, Britain, Japan, Germany, and France combined. There were more than 360 million online shoppers in China in 2014, more than the entire population of the U.S. Due to rapid urbanisation in China cities are increasingly more congested, polluted and crowded with more pressure put on infrastructure and public services. Many Chinese as a result turn to online shopping to avoid the crowds, this coupled with faster delivery times leads to more purchases.
The Chinese popularly purchase fashion items, cosmetics and entertainment based products online.
E-commerce has ‘gone mobile’ in China
E-commerce has truly gone mobile in China, online shopping conducted on smartphones, tablets, and other mobile devices will reach US $334 billion in 2015, mobile shopping will thus account for 49.7 percent of ecommerce expenditure. With the rise of the smart phone/tablet (phone sales have increased 17% from the previous year) and user friendly apps, the Chinese consumer’s life is increasingly centred around their mobile. This produces an avid consumer who seeks to purchase ‘on the go’ without relying on physical stores or locations.
The e-commerce landscape is different
The e-commerce market is unique in China largely due to internet censorship, many western e-commerce giants have not been able to successfully expand into the middle kingdom due to state restrictions. This is also evidence that the Chinese market is very different, you cannot simply transplant an existing business model that works in the west into China.
As a result the largest e-commerce websites in China are domestic firms that have grown to cater for the unique demands of the market here.
Who are the main players?
The Chinese internet giant Alibaba own the two largest e-commerce platforms.
Tao Bao – Tao Bao is owned by online giants Alibaba and is the most successful online retail platform in China. Taobao facilitates consumer to consumer (C2C) retail by providing a platform for small businesses and entrepreneurs to open online stores. Sellers can post goods to sell at a fixed price but also in auction (although this makes up a very small percentage of sales).
Unlike eBay who charge sellers on a transaction basis, Taobao offers the basic service to sellers for free.
Taobao also offers an advertising/promotion service to monetize traffic, which sellers will popularly pay to participate. Taobao provides two lists, an ‘organic’ listing, where sellers are listed for free, as well as a ‘paid’ listing, where sellers pay Taobao to increase their exposure to potential buyers.
The Chinese greatly value direct communication so setting up a messaging system between buyers has also proved popular, users can rate sellers and leave reviews which are strongly heeded in China.
TmallTmall has become a popular e-commerce platform where Chinese shoppers are able to purchase international and local brands.
It was launched in 2008 as an e-commerce website with the aim to host official brand ‘shops’. This greatly appeals to the Chinese as there are so many fake and counterfeit goods circulating, they want to ensure brands are genuine and will pay a premium for this.
Tmall Global was then launched in 2014 with the purpose of promoting foreign brands and facilitating their access to the Chinese market. Nowadays, Tmall has more than 70,000 brands in 50,000 stores.

Other sites such as JD.com or yhd.com are also growing in popularity but Alibaba currently have the e-commerce monopoly in the middle kingdom.

The Chinese actively share their purchases on social media

Shoppers are incredibly active in terms of their online communication, they will often share their purchase decisions with their network on social media outlets such as Weibo or WeChat. Many Chinese online platforms offer consumers the chance to share their purchases directly after they are made online. The Chinese particularly place great trust in their immediate social circle so linking e-commerce to social networks is an important cross-over to capitalize upon.
Understanding the right channels and the market is key, many firms will partner with local, specialist agencies to develop this knowledge and utilize their connections in China. Establishing connections with online retailers is key, of course the language barrier can be an issue (there are still relatively low levels of English) so having a Mandarin speaker and their knowledge is vital.
Benji Lamb has lived in Shanghai for five years and specializes in e-commerce, digital marketing, and social networking in China. He is passionate about finding solutions for western firms in the aptly named mysterious orient. For more information see his marketing website and blog.

Future of Ecommerce According to Bill Gurley

Prominent VC BIll Gurley comments on the future of ecommerce at the Sailthru conference. In their words:

In this chat, Bill examines the future of ecommerce and provides his perspective on the future of the unicorn market, how “funnel reversal” is impacting marketer’s focus on google, and why retention is critical to profitability over acquisition’s hold on growth.

Worth watching this video if you’re thinking about your site, third party marketplaces and so-on.

Bricks and Mortar Fightback

As I mentioned in my last post, pure play ecommerce is hard. And now as the FT notes, bricks and mortar i.e physical retail are fighting back. The FT neatly sums up the state of ecommerce today:

…the growth of pure-play digital retailers is under threat as their marketplace becomes increasingly crowded. The big beasts of the UK high street have finally fought their way into the sector, meaning that digital retailing is no longer the preserve of digital businesses.

Read full FT article (paywall)