Brands Look To Capitalize On E-Commerce Boom In China

A results-driven strategy that focuses on China’s evolving consumer class and how they interact with brands both online and offline is a must, according to experts.

Last month, Chinese e-commerce site Alibaba reported a rise of online sales of 32% to 120.7 billion yuan (US$17.73 billion), an impressive number, indeed. But that wasn’t a quarterly figure, or even a monthly tally–those were sales recorded in one day over China’s Singles’ Day sale, the country’s annual version of Black Friday.

As the world’s second-largest economy continues to blaze trails across all market segments, China’s highly developed e-commerce platforms are a principal driver of its retail sales explosion.

Online retail sales totalled 3.877 trillion yuan (US$589.61 billion) in 2015, an increase of 33.3% over the previous year, according to the National Bureau of Statistics in China. Worldwide, China now accounts for 47% all digital retail, according to a report released by eMarketer earlier this year.

eMarketer also predicts “massive gains” over the next few years. By 2020, China’s online retail purchases are expected to account for 68% of global sales, representing a staggering US$2.4 trillion.

Big Budgets And Branding

For marketers looking to capitalise on China’s e-commerce boom, a results-driven strategy that focuses on China’s evolving consumer class and how they interact with brands both online and offline is a must, according to experts.

Pete Lin, managing director at We Are Social in Shanghai, said that overconfident marketers coming into the Chinese market and thinking they can sidestep the sizable financial commitments required to get established are likely to be disappointed.

“I’ve seen marketers come in with minuscule budgets believing that they can outsmart everybody else. They’ve all failed,” Lin told CMO.com.

Spending big, however, isn’t the only dynamic, said David Hornby, sports business director at the Mailman Group, a technology and social media agency that launched in China in 1999.

Horby pointed to a European retailer that went to “great expense” to purchase the licence to multiple sports properties. “They then rolled out a very basic strategy and failed spectacularly when people didn’t buy what they were selling,” Hornby told CMO.com.

Such examples are symbolic of a common mistake companies make in assuming that what worked in other markets will also work in China.

“Businesses should create products that are produced specifically for the Chinese market, as opposed to rolling out a whole load of SKUs from global markets and hoping they’ll sell in China,” Hornby added.

Before investing big on inventory, however, organisations must first develop a brand presence that resonates with Chinese consumers.

“Marketers coming into China with hopes of profiting on e-commerce must be willing to first make the investment in branding,” Lin said. “Otherwise, it’s a waste of time and money.”

Lin pointed to international clothing retailer Zara as an example of success. “The Zara Group has been very methodical in building its presence in China, starting with its offline offering and building its brands via favourable consumer journeys,” Lin said. “It’s now taken its business online and conditioned its customers to buying both online and offline.”

Recognising The Rural Market

Also key is establishing brand resonance online with the tens of millions of consumers in rural China who are often unable to develop a relationship with brands offline.

“Digital purchasing in lower-tier China is essentially a bridge connecting those people to China’s modernisation,” said Jerry Clode, head of digital and social insight at Resonance China. “The fact that they do not have bricks-and-mortar stores that are convenient for them to shop at means their brand relationships start and develop almost entirely in the digital space. This is a reality brands need to face if they want to take advantage of new wealth and consumption trends in rural China.”

While the rush is on to profit from the e-commerce boom, Clode reminds marketers that it’s not the only game in town.

“A point of caution is to not forget the brand value of physical stores in China,” Clode said. “While sales revenue may be affected by the rise of e-commerce, retail presence is essential in terms of creating a perception of trust and reputation among Chinese consumers.”

Regardless of whether it’s an online or offline platform you decide to hang your shingle on, China’s ballooning middle class is, like everywhere else in the world, the prime demographic to cultivate over the long haul.

“For brands to succeed in their area, they must anchor their offerings on the emerging concerns of China’s middle class,” Clode advised. “Marketers should focus on new lifestyle areas, such as independent travel, food, and nutrition, and an increasing desire for bespoke and personalised services.”