EcommErcE in china – what you nEEd to know

A Point-of-View by Salmon – working with clients in China to enhance

ecommerce performance since 2007

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IntroduCtIon

China is the world’s largest ecommerce market. In 2016 the turnover of China’s online shopping market reached 20 trillion yuan ($2896 billion). Forrester estimates that by 2020 the market will almost double in size to reach $5792 trillion. It does not come as a surprise then that a lot of brands are thinking of expanding their ecommerce operations into China. While the Chinese market can undeniably seem attractive, there are some things that brands should know about before moving in for the proverbial kill. this article points out some of the unique characteristics of Chinese ecommerce to help you map out the key requirements and possibilities for entry into the Chinese ecommerce market.

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In 1978 deng Xiaoping started on a course of reforms that abolished the central planning economy and introduced free markets to the Chinese economy. As it has been less than 40 years since the economic reforms, the development of brick-and-mortar stores with a large base of loyal customers is lagging behind, and preferences for traditional ways of doing business are also not as strong as in developed countries. therefore, ecommerce has had comparatively more space for development in China and has brought more opportunities for newcomers to gain significant market share. However, there is a major bottleneck that currently limits the growth and opportunities of Chinese ecommerce. this bottleneck is trust.

Many Chinese consumers and companies have had unpleasant experiences of being the victims of a scam or they have received substandard products that were different from the products they have seen in an online shop. these experiences lead to decreased trust with the buyer. It is not just negative online experiences that lead to buyer distrust; many buyers have experienced decades of being overcharged in brick-and-mortar stores, and frequent media reports of product safety scandals further contribute to a general feeling of distrust towards sellers. It is, therefore, understandable that many buyers are on their guard.

Winning customers’ trust should be a number one priority. Companies who ignore the need for customers to feel safe and be reassured about their purchases do so at their own peril.

the story of eBay is a good illustration of this. eBay, the first mover into the Chinese ecommerce market, experienced very slow growth because the users did not want to pay for goods upfront after a few well-publicised scams had taken place on eBay. After a few years, Jack Ma’s Alibaba moved into the market with its Alipay solution where Alibaba only sends the money to the seller after the customer has confirmed that they have received the goods and are satisfied with them, ie. the Escrow model.

this payment mechanism enabled Alibaba to quickly gain the lion’s share of the Chinese ecommerce market. nowadays, first mover eBay is relegated to being a niche player while Alibaba is China’s largest ecommerce marketplace, with Alipay as the largest payment service provider in China boasting a 43.44% market share.

our VIEW on tHE CHInESE ECoMMErCE MArkEt

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WHy ArE MArkEtPlACES So PoPulAr In CHInA?Marketplaces have become popular because they inspire trust in buyers. In addition to aforementioned mechanisms like Alipay, Chinese ecommerce marketplaces also use all kinds of other measures to win the trust of customers, such as checking the backgrounds of the members, and vouching for both parties (the existence of the company, the legality of operations etc.). Customers can also rate the seller’s service. this means that on a third-party website, buyers can assess the reliability and performance of a shop to a certain extent. An own website lacks the neutral third-party and does, therefore, not create the same feeling of trust and security with new customers.

Sophisticated B2C marketplaces have been established for a long time. In many cases, the marketplace also offers customer management tools, online support, a mobile app and other complimentary services. For a long time B2B marketplaces were simple online catalogues and, therefore, lagged behind B2C marketplaces, but recent cooperation between Chinese banks and B2B ecommerce marketplaces have enabled the latter to provide credit cards and other financial services to their customers. the latest figures available (for the first half of 2016), show that the B2B market accounts for 75% of the Chinese ecommerce market.

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the tendency for Chinese customers to frequent ecommerce marketplaces can bring with it some challenges for brands. on the marketplace they have less control of the user experience and, in some instances, a Chinese company may borrow an existing foreign brand name and sell forgeries under that name, even releasing advertisements and marketing messages.

Clearly, there is a benefit to the buyers when a brand’s own website can guarantee the authenticity of the products. A further advantage is that a brand has better control of data. third-party marketplaces are usually very hesitant to provide statistics and data to their customers and often charge a large fee for a limited set of data.

A final problem of ecommerce marketplaces is that, with so many sellers vying for a customer’s attention, the main way of competition is often through price – which can hurt profit margins. this trend is slowly changing as many online shoppers become more affluent and are willing to pay more for better quality of products and services. the next challenge is how to express these high-quality standards to buyers who are browsing a marketplace with many competitors.

However, in a market where the buyers are used to automatically heading to one of the large online marketplaces with their credit cards, it might be hard to attract visitors to a brand’s own website.

A common approach is to have both a website and a shop on one of the online marketplaces. the online marketplace is used for customer acquisition. new customers can try out products and build a trusted relationship with a brand. Marketplaces are also often used for raising brand awareness. repeat customers can then be directed towards the proprietary website with promises of better customer experience and/or better customer service.

When building a website for the Chinese market, there are several things to keep in mind that are different to Western standards. Chinese web design is different to European or American web designs. the webpages look a lot busier and many are filled with links, gifs, pop-ups and flashy banners all competing for attention.

In China, mobile sites are also seen as stand-alone from the desktop version of the website. often, a customer will only engage with the mobile or desktop version. Even when viewing both versions, many customers are unfazed by different appearances and functionalities of the mobile and desktop ecommerce shops.

oWn WEBSItE APProACH

Alibaba is China’s – and by some measures, the world’s – biggest online commerce company handling more business than any other ecommerce business.

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SEo In CHInAthere are two methods for Search Engine optimisation: the direct way is to spend a large amount of money to push a website up in the search results for a product for a short time. For example, a brand could pay Baidu, the Chinese search engine (and website) to be ranked in the first few search results if someone searches for “fashion”. the issue is that this can be quite expensive and only lasts for a short while. Many Chinese internet users are also aware that the top search results on Baidu are often bought, which further diminishes effectiveness.

the second method is to create content including the company’s name on a lot of different web pages. For example, if a potential customer searches for electrics, he or she might be directed to articles about electrical appliances and a brand could be mentioned in that article. If the customer then searches for the name of the company directly, he or she can easily find the website. this is less straightforward than the first method. Because it is more time-consuming, that also means it is not necessarily cheaper than directly spending money on Baidu. But while it takes longer to rise in search rank through this method, the effects last much longer.

SoCIAl MEdIA In CHInAthe social media landscape in China is markedly different to the ones in the uS or in Europe. Access to a lot of the popular western social media sites is blocked by the so-called Great Firewall. the social media sites that Chinese users visit are often homegrown versions of social media on the other side of the firewall. As such, the names of these social media might sound unfamiliar to the uninitiated reader. nonetheless, a knowledge of the social media is important for marketing activities. In 2012 more than 90% of Chinese netizens visited social media websites regularly. native Chinese social media have become the prime channel for many people to obtain information. A lot of ecommerce companies also use China’s homegrown social media to interact with potential customers, to present new products, announce special events and offer customer service and marketing messages. there are several social media channels often used by foreign companies for advertising, including Sina Weibo, WeChat, tencent Weibo, Zhihu, douban, kaixinwang and renren. And there is one service that deserves special mention: WeChat…

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Weixin (English name: WeChat) combines features of Facebook and instant messaging apps. It is also the most popular social media service in China. However, WeChat is also much more than that as it allows companies to set up shops on its service, the so-called public channels. WeChat offers one platform for consumers to:

■ Browse/Search for information on public account

■ Check-out through a “one-click-payment”

■ raise requests with customer service

WeChat is a good tool for customer acquisition because it has a large customer base, and the threshold for a consumer to engage with a brand is low. on many Chinese ecommerce websites, customers need to set up an account the first time and afterwards they need to log in with a user name and a password every time they want to use ecommerce functionality on that website. Because this process is cumbersome, customers will limit the times they visit an ecommerce website. But potential customers are present on WeChat every day and will be constantly logged in.

More than 50% of WeChat users spend more than 1 hour a day on WeChat. this makes it much easier for the customers to interact with a brand and visit a public channel several times.

In addition to marketing and customer acquisition, WeChat is a good tool for customer service and is best for keeping in contact with (potential) customers and enhancing the customer experience. on WeChat users can also post manuals, tutorials and pictures of the products. WeChat is also useful for simple commands such as checking the billing details and asking the price of a product, or asking questions to a sales rep. All these functionalities, combined with a constant user presence, make for an extremely seamless user experience which can result in a higher sales conversion rate.

But for more complex customer journeys, a website or an app will often deliver better functionality. WeChat public accounts are, therefore, often used as a supplement to a website or presence on an ecommerce marketplace.

SoCIAl MEdIA: WECHAt

WeChat (Weixin) and Facebook are the leading search social networks in China and globally

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Company brands are more important than product brands in China. A company brand strongly influences the way Chinese customers perceive a product brand connected to that company brand. In China, a good way to build a company brand is through displays of corporate responsibility, such as funding local schools or donating to charity. Corporate responsibility is a way of gaining customers’ trust and creating a distinctive company culture that will reflect upon the company brand in China. Many Chinese ecommerce brands have also engaged internet celebrities, the so-called Wang Hong, to promote a company brand.

Here are some examples of successful marketing campaigns in the past.

■ Customers can take a test (e.g. personality test) and are then able to post results on WeChat moments

■ Customers can go on a virtual treasure hunt and learn more about the brand on the way

■ Games where customers can learn about a company’s history, manufacturing process and the like with the possibility to send friends Qr codes to invite them

■ Customers can collect loyalty points and enter in a prize draw when customers have accumulated enough loyalty points

■ An Internet celebrity (the aforementioned Wang Hong) presents the products and the companies during a live stream show where customers can ask questions or make requests

MArkEtInG StrAtEGIESIn Europe and America, brands are a way of differentiating the product from the competition through the associations the customer has with that particular brand. But, in China, the primary function of a brand is to gain the trust of customers. In the eyes of most Chinese buyers, a well-known high-end brand guarantees high quality and a decent customer service, meaning it becomes easier for the customer to trust the company selling that product.

Establishing trust with customers is an over-riding concern for brands in China

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loGIStICS CHAllEnGESlogistics can be a challenge in China; in the Eu logistics is only 6% of GdP whereas in China logistics make up 17% of GdP, which indicates that shipping is relatively costly. there are several kuaidi (courier) companies with varying prices, varying levels of services and different geographical areas where they operate.

Selecting the right courier is an important decision to make because they might be the only physical interaction that your customer has with your brand. For example, Shunfeng kuaidi has a reputation of being fast, efficient, transparent, having good customer service, good packaging and a relatively low rate of items going missing or becoming damaged during transport. If you sell high quality premium products online, a more expensive but also more reliable, high-quality courier service is the way to go. However, a courier service might not cover all areas in China. For remote provinces or villages, China Post is often the only option – but it is also notoriously slow.

JD.com staff receiving incoming goods, sorting products, and preparing shipments at the Northeast China based Gu’an warehouse and distribution facility

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According to Chinese law, every company engaging in ecommerce and with an own website domain has to apply for an ICP license. An additional license is also required for companies that want to embed videos or podcasts on their ecommerce website. this has to be applied for at provincial government level and can sometimes be hard to obtain for foreign companies

Furthermore, data protection laws in China are deliberately vague and hard to interpret. this enables the government to shut down ecommerce operations that are deemed undesirable. Indeed, there is a political risk in operating in the Chinese market. In the past, the government has revoked licenses of companies for political reasons.

Fakes are widespread, and on WeChat, marketplaces or social media websites, another company could have set up an account in your brand’s name or might use your logo or content. through pressure by the Chinese government, there have been improvements in addressing these issues. In particular, Alibaba is now policing its website more strictly to remove fake products and fake accounts.

depending on the products that your brand sells, there are certain restrictions and regulations that might apply to you. For instance, there are strict rules regarding selling alcohol and for products like diabetic foods, and feminine hygiene products. A pharmaceutical license is required which comes with a long list of requirements that can be difficult and costly to meet. Cosmetics have to be tested on animals before they are allowed to be sold in the Chinese market.

the great firewall of China blocks foreign IP addresses or makes the websites extremely slow to load. this means that companies who want to sell their products in China need to run their Chinese ecommerce website on a server located in mainland China or risk customers not being able to reach the website.

lEGAl ASPECtS

Legal can be a stumbling block and is one reason

why many sellers turn to ecommerce platforms

HoW SAlMon CAn HElP Salmon is a global ecommerce consultancy and the largest in the global WPP network of companies. Its China operations are spearheaded through a team of ecommerce experts in its Beijing office. through this local expertise, we can leverage our knowledge of establishing market penetration and development within the unique, dynamic market – and markets – of China.

Get in touch with Salmon via +44 (0)20 3858 0061 or info@salmon.com

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aBout SaLmon

Salmon is a global digital commerce consultancy – the biggest in WPP’s network of companies – that defines and delivers market-changing solutions and customer journeys for the world’s leading brands.

Established in 1989, with operations in london, Amsterdam, new delhi, Beijing and Melbourne, Salmon clients include Argos, Asian Paints, Audi uk, dFS, Halfords, Jumbo, lloydsPharmacy, Premier Farnell, Sainsbury’s, Selfridges and Sligro Food Group.

©2017 Salmon ltd. All rights reserved. All company and product names, brands and symbols mentioned herein are brand names and/or registered trademarks of their respective owners.

For more information,call: +44 (0)20 3858 0061email: info@salmon.comvisit: www.salmon.com