What can China offer UK e-tailers?

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Author: Nenad Cetkovic, COO, Lengow

 

Despite decelerating, China’s growth rate remains impressive, at 7% for Q4 of 2015. Compare that to the UK’s 0.5% growth rate, and China’s retail opportunities seem obvious. Add the fact that the country has 670 million internet users1, more than any other country, and it’s clear to see why online retailers are increasingly expanding into China. The country is now the largest ecommerce market in the world, and estimates predict that there will be over £650bn worth of online sales in 20162, despite the fact that currently, internet penetration remains less than 50%. That is to say, 500 million Chinese people are not yet online, close to the total population of all of the European Union countries, at 503 million. Predictions state that by 2020, the Chinese ecommerce market will be larger those of the USA, Britain, Japan, Germany and France combined (the 2nd to 6th largest ecommerce markets respectively).

 

Opportunities for British retailers in particular are numerous; James Hardy, European Head of Alibaba.com has said that British merchants can attract Chinese consumers by utilising the region’s first-rate reputation for high-quality products. What’s more, China’s key players are beginning to encourage cross-border trade; for example, the Alibaba Group launched its international marketplace, Tmall Global, in 2014.

 

What are Chinese consumers looking for?

It is crucial for online retailers to realise that consumer behaviour in China depends greatly on age, and thus marketing strategies should be suited to their targeted demographic. The older generation tend to more frugal when it comes to spending, whereas young people save less, choosing to spend their money on entertainment, electronics and luxury brands. This younger group are the most interesting for e-tailers, as 60% of online shoppers are between 19 and 35, and they often rely on social media to discover new trends.

 

Retailers should also be aware of the three main factors which influence Chinese buying behaviour. iResearch’s recent survey revealed that the preferential purchasing condition for over 34% of Chinese customers is price, followed by convenience and trust. Consequently, it is key that online merchants provide a smooth purchasing process, to both reassure and satisfy the customer, with a customer service team that remains reactive despite the 7-8 hour time difference.

 

What risks should you be aware of when selling in China?

It goes without saying that online retailers will encounter logistical difficulties when delivering to China. Unfortunately, the growth of China’s mail service does not match that of its general ecommerce market. This lack of high quality logistics can cause multiple issues for businesses, from lost parcels to late deliveries, which can prove disastrous in a country where such a large emphasis is placed on trust. Therefore, retailers must find a reliable third-party logistics provider to make sure packages are delivered safely, and on time.

 

Businesses should also adapt their payment methods to suit the Chinese market, or risk losing customers. 49% of online transactions are made through the Alibaba’s payment service, Alipay, so be sure to offer this option. Retailers also risk losing customers if they do not recognise China-specific national holidays. The two most lucrative retail holidays are Chinese New Year and Single’s Day on 11th November, neither of which are celebrated in the Western world. In 2015, customers spent over £71bn during the Chinese New Year period, and Alibaba generated $14.3bn worth of sales on Single’s Day alone. Considering 33% of Chinese consumers bought items from international brands during the 24-hour event, it is crucial that international retailers market their products for these specific events.

 

How do Chinese e-commerce giants compare with eBay or Amazon?

In most countries, Amazon is the ecommerce leader, dominating the market share. However, in China, researchers estimate that Amazon only has 1.5% of market share, and is instead overshadowed by Alibaba. Having realised that they cannot compete with Alibaba in regards to domestic B2C sales, Amazon now markets itself in China as a way for Chinese retailers to sell internationally, thanks to its Amazon Global Store Initiative. In a similar vein, eBay tried to enter China in 2002, having already successfully replicated its business model in 19 other countries. But in 2006, it withdrew from the Chinese market due to Taobao, a competitor founded in 2003. Both of these companies failed to flourish because they didn’t adapt their sites specifically to the Chinese consumer. National identity is very important to the Chinese population, and Taobao markets itself as a truly Chinese platform, utilising reds and oranges, which represent festivity and prosperity in China.

 

Chinese consumers also like busy web designs with lots of colours and links; Taobao’s interface mirrors this preference. Foreign businesses often play down the importance of trust to a Chinese consumer whereas Taobao has its own chat where buyers and sellers can establish this trust and negotiate a price. Furthermore, both buyers and sellers are rated on this marketplace, as opposed to just buyers on eBay.

 

1 - finance.sina.com.cn/360desktop/roll/20150727/215522803640.shtml Finance.sina.com.cn. 2015-07-27. Retrieved 2016-02-29.
2 - www.emarketer.com/Article/Ecommerce-Drives-Retail-Sales-Growth-China/1013028

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