Learn about China’s largest e-commerce players, why having a mobile accessible site is even more important in China and why agility wins over perfection in the highly competitive Chinese e-commerce market.
A quick introduction into selling online in China
China is currently the largest e-commerce market in the world after having surpassed the US in 2013, with sales topping 300billion USD in 2013. With over 564 million Internet users and 755million mobile phone subscribers, China’s internet is not only being accessed from computers but also increasingly from mobile phones and tablets. Consequently, do not make the mistake of underestimating the importance of a mobile compatible website in China.
I will not bore you with more statistics on the growth of the Chinese Internet market, but I would encourage you to read Nielsen’s report on the growth of Internet and sales online in China if you are interested in learning more about it.
In China, one large player dominates the e-commerce landscape: the Alibaba Group. Alibaba’s Taobao, China’s largest consumer-to-consumer shopping website owns over 50% of the C2C market, whilst its sister-company, Tmall, dominates the country’s business-to-consumer market.
To give you an idea about the size of Alibaba: Tmall and Taobao have more than 6 million vendors combined that offer over 800 million products. During the Chinese equivalent of Black Friday, Taobao alone reached over 5.7 billion USD of sales in one day. And Alibaba’s sites account for over 60% of the packages delivered in China.
You could say that Jack Ma, the owner of the Alibaba Group, has single handedly brought e-commerce to China. His company Taobao was even able to take down American Internet giant Ebay.
“Ebay may be a shark in the ocean, but I am a crocodile in the Yangtze. If we fight in the ocean, we lose, but if we fight in the river, we win.” – Jack Ma
Jack Ma’s quote also reveals a lot about the ecommerce landscape in China; it’s highly competitive and you need to be strong in order to survive.
Cutthroat competition combined with an evolving consumer market also asks for an agile approach to business in order to stay ahead of the competition. As a result, Chinese companies tend to be highly adaptive and are not afraid to overhaul their strategies when market conditions change.
The majority of the other e-commerce platforms in China are struggling to stay afloat, yet their futures do look bright. For instance, YHD.com, a large e-commerce platform that is majority owned by Walmart, is witnessing strong year-on-year growth. The same applies to JD.com and several smaller boutique online stores specialized in, for instance, baby accessories and fashion products.
However, selling online in China is not cheap. Online advertising costs in China can be substantially higher than in Europe or the US. Case in point, placing an advertisement on Baidu (China’s largest search engine) to buy real estate abroad can be as high as 15USD per click. Hence, do not underestimate the costs of attracting visitors to your website.
The average Chinese Internet user has grown accustomed to shopping online, but mainly does so on platforms such as Taobao. It is interesting to note that often times search engines are skipped entirely when looking to purchase products online, instead consumers will go directly to an e-commerce platform to look for products.
On the other hand, Chinese consumers will spend significant time combing through social media and review websites to gain a better insight into your brand and your products.
Since Chinese Internet users tend to be highly active online through (micro-) blogging and engaging in online communities, the smallest mistake can have lasting consequences. Managing your online reputation is therefore even more important in China than it is for example in the US.
A scattered landscape: differences between cities and regions
China is a developed and developing market in one. Substantial differences between regions and cities demand a highly targeted approach. Companies need to understand the differences in consumer preferences, logistics and more per region in order to achieve results. This also applies to selling online.
Although it is easy to classify cities as tier 1,2,3 or 4 cities based on their economic development and other such parameters, that type of classification does not take into account the differences between the regions in which those cities are located. Consequently, developing a strategy to sell to second-tier cities equals not having a strategy. Instead, the best way is to cluster cities/regions based on similarities and consequently tailor your strategies to those clusters.
Depending on the region you will sell in, you will also find different challenges; companies selling in China’s more developed regions and cities such as Shanghai and Beijing have to deal with heavy competition and generally serve a more affluent consumer base. In less developed regions, e.g. Wuhan and Tianjin, consumers mainly shop online because they have access to larger variety of goods online, which are often cheaper than in stores. Price is therefore more important there than it is in developed regions. In China’s poorest regions, purchasing behaviour is still mainly influenced by price and the biggest challenge in those regions is managing logistics. Hence, every region/cluster brings with it a different set of challenges that need to be addressed.
Don’t underestimate the importance of mobile
Many of China’s Internet users surf and buy online using their mobile phones. Smart phones are very popular in China because it enables people that cannot afford a computer to still access the Internet. Of all phones sold, over 66% are smart phones.
Of China’s half a billion Internet users, 270million also shop online, spending over 300 billion USD in 2013 alone. However, mobile purchases accounted for only 5% of that amount.
Nonetheless, it is important to have a mobile compatible website where Chinese Internet users can learn more about your brand and/or purchase your products. The mobile segment is only likely to grow and as a result it will therefore become increasingly important to have a mobile accessible website or app, or even both.
Why agility triumphs over perfection
When somebody asked the VP of YHD.com – one of China’s largest e-commerce platforms- why so many foreign companies failed to succeed in China’s online market, he said: “It’s because they are not close to their consumers. They do not listen carefully enough to what consumers have to say and often their operations are still managed from abroad. This slows down the decision-making process and also negatively affects the company’s performance”.
YHD.com’s strategy is to use an agile approach to business. Incremental innovations based on consumer feedback and data drives their company forward. Instead of aiming for perfection, they release beta versions and quickly adjust their products/services to fit with market demand.
A great example of another Chinese company that takes customer feedback very seriously is Xiaomi. The mobile phone company actively involves customers in the creation of new mobile phones and lets consumers try out new features before releasing a phone into the market.
Hence, when selling your products online in China, pay attention to customer feedback and be highly adaptive. Most Chinese companies win over their foreign competitors because they are more aware of local consumer needs and are able to react faster to a change in that. Simply spending more time on the ground with your customers will therefore already assist you in competing more effectively.
China’s e-commerce market is growing rapidly and with more and more Chinese companies becoming active abroad, learning about this market will not only help you to compete more effectively in the Chinese market, but also in your home market.
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