6 Ways Retailers Can Capitalize in the Chinese Market
Retailers seeking to grow revenues in a tough global economy are increasingly tapping into booming e-commerce markets in developing countries, according to a recent report by management consulting firm A.T. Kearney. The most promising e-commerce market of all is China.
China has 538 million internet users, equal to the combined populations of the U.S. and Brazil. Nearly 200 million of them have shopped online and millions more are becoming e-shoppers every year. Boston Consulting Group (BCG) predicts China's "explosive" e-commerce growth will have the country surpassing the U.S. as the world's largest online retail market in a few years. Online sales in China are expected to triple to more than $360 billion between 2011 and 2015, according to a recent BCG report which named China as "the world's next e-commerce superpower."
With that kind of potential, the only question facing retailers who haven't plugged into China would appear to be "What are you waiting for?" In reality, while building an online presence is seen as a relatively low-risk way to test new markets or complement existing store footprints, e-commerce in China poses considerable challenges for retailers. There's lots of competition from established domestic players, it can be difficult getting online orders delivered efficiently outside of major cities, and it can be tricky getting paid in a country where consumers tend not to use credit cards and where the currency, the renminbi, isn't easily convertible.
In other words, you can't simply translate your existing English-language website into Mandarin and start selling to the masses. Strategies must be tailored to the unique behaviors, demands and complexities of the online ecosystem in China. Below are some key considerations:
1. Roll out your own site or join a platform? Building an independent, stand-alone Chinese e-commerce site may be the best option for companies that can afford the considerable expense. An end-to-end operation, including warehouses, distribution and after-sale service, affords maximum control of brand image and the customer experience. Retailers that already operate brick-and-mortar stores in China often choose this route because they can leverage their existing marketing and distribution networks — online and offline can be integrated by using stores as both physical showrooms and fulfillment centers. Shipping costs are low in China, but e-commerce is hindered by inadequate delivery infrastructure, a situation that can be more easily addressed with an end-to-end approach.
Keep in mind that Chinese e-shopping habits differ from those of consumers in other parts of the world. Only 19 percent of online shoppers in China regularly visit stand-alone, official brand or manufacturer websites, compared with 41 percent to 60 percent in Japan, the U.S. and Europe, according to BCG. "Sometimes, even brands that people know pretty well in China, they put up their own e-commerce site and no one goes there," says Jeff Walters, partner and managing director of BCG's Beijing office.
To go where the eyeballs are, many retailers opt to forego a stand-alone website and instead open a storefront on one of China's popular web marketplaces. These third-party B-to-C platforms are where the majority of Chinese do their online shopping. The largest of these is Tmall.com, which had a 41.5 percent share of the entire Chinese B-to-C market in this year's second quarter (second-place 360Buy had a 15.5 percent share) and hosts storefronts for multinational brands such as Adidas, Gap, Uniqlo, Ray-Ban and Levi's.
Joining one or several of these platforms is generally a lower-cost way to sell in China, allowing retailers to get a feel for the market and test strategies. As the market leader, "Tmall appears to be the best way to attract traffic," says Walters. The downside: The marketplace's popularity means "it can be hard to generate a consumer experience that's distinct from that offered by competitors also selling on the site."
Like brick-and mortar shopping malls, B-to-C marketplaces offer a presence in a high-traffic neighborhood, but retailers pay for this positioning and they still must handle the dirty work of marketing, managing their store, providing customer service, fulfillment and delivery logistics. Third-party service providers can be hired to tackle many of these functions.
2. The "outsource everything" option. In the past, the expense and complications of Chinese e-commerce made it impractical for small and midsized retailers and manufacturers to sell directly to Chinese consumers. But recently new companies have emerged offering soup-to-nuts China solutions aimed at and priced for U.S. SMBs. Export Now and GTC Commerce provide Chinese-language online storefronts, operate their own warehouses in China, and promise to handle all overseas shipping, customs issues, last-mile delivery, even Chinese-language customer service. The services, which get paid by taking a cut of every sale, are just getting started so the jury's still out on their effectiveness.
3. Adapt to local tastes. Online shoppers in China are increasingly discriminating and intolerant of fakes and shoddy goods. Their tastes today "aren't drastically different from U.S. consumers," says Janet Wang, head of international business development for Tmall.com. Still, e-tailers should take advantage of the data and consumer feedback available through e-commerce to monitor and adjust to local demand. "We recommend that brands be sensitive to any market changes and be flexible," says Wang, "sometimes even customizing particular products, colors or styles for the Chinese audience. For example, Ray-Ban launched a collection of sunglasses designed to better fit Asian face shapes."
4. Encourage customer feedback. China's digital marketing landscape, devoid of Facebook and Twitter, can seem alien, but companies can get their messages out by tapping multiple channels, including the country's indigenous social media. Walters says one striking difference in China is the time and energy online shoppers invest in writing and reading product reviews. A BCG survey found Chinese consumers depended on product reviews when shopping online more than any other group in the world. "Knowing how to be part of that online conversation is really important," Walters says. Product reviews "can't be ignored in this market."
5. Hold the line on pricing. Chinese consumers have less disposable income than shoppers in the developed world, but that doesn't mean more expensive products from the West can't get a foothold. "Usually China is the low-cost producer, so you're not going to compete on price," says Frank Lavin, a former U.S. Commerce Department undersecretary and chairman of Export Now. American-made goods are perceived by Chinese consumers as premium products, he says, an image that retailers should foster rather than erode by cutting prices.
"The most important asset you have is your brand," Lavin says, "and you should not dilute that by going down-market. It might mean you have a little less depth and penetration in the market but you maintain your brand integrity and definition."
6. Protect your intellectual property. Piracy remains a big problem in China. If your product becomes even marginally popular, there's a chance your brand will be copied or imitated. To defend yourself, you may need to commit staff to monitoring your intellectual property on the Chinese web and hire a lawyer to threaten transgressors. Holding valid U.S. patents and trademarks isn't enough. To bring a lawsuit in China's patent courts, you'll first have to register your intellectual property in China.
Despite the obstacles, the risk-reward balance in Chinese e-commerce is tipping toward reward. "China is changing so rapidly that even people who visited five years ago don't have an accurate view of consumer power there," says Lavin. "They tend to think the degree of difficulty is high and purchasing power is low. But the degree of difficulty is dropping every day and the benefit of accessing this market keeps growing every day."