E-commerce in China: An Insight into the World’s Biggest E-Commerce Market
When it comes to e-commerce in China, one can firmly state that the future is already here, or, at least the future that Amazon is striving for is already a reality in China.
In the Middle Kingdom, consumers can buy literally anything online, both goods and services, and get same day delivery at no extra cost. And 75% of the time, this will happen on a mobile device.
When I first came to China, I would have never thought that in a few months’ time I would be doing my grocery shopping on a smartphone while commuting. And now, that the only way I shop for pretty much everything.
In this article, I’ll explore the particularities of China e-commerce and explain how it is different from e-commerce in the West.
There are several important drivers of Chinese e-commerce that make it so advanced, such as a highly developed e-commerce ecosystem, efficient logistics infrastructure, an immensely large number of internet users (731 million) and their rising disposable income.
China’s highly developed e-commerce ecosystem
The B2C e-commerce market is dominated by Alibaba’s Tmall and Taobao that makes up for 51% of the B2C e-commerce market, followed by JD.com (see chart).
The role of these e-commerce giants should not be underestimated. I recently had an epiphany moment when one of our international clients expressed his concern that the official store of their brand on Tmall resulted in more sales than its official website.
The dominance of third-party platforms in some cases undermines the importance of retailers’ websites as for the majority of retailers, only 10% of their e-commerce revenue comes from brand-owned websites.
This means that it is very likely that a consumer will go directly to Tmall or its counterparts to search for a category or a specific brand and eventually buy it without consulting a brand’s site. As a result, many international brands have launched their Tmall official stores, including big luxury Maisons such as Burberry, Tag Heuer, Zenith, etc.
The power of data
The power of e-commerce giants is reinforced by the tremendous amount of data that lies in their hands. From awareness to purchase, the data that they own covers the entire customer journey.
Big players such as Alibaba start to unlock the power of data and analytics, enabling sellers to carry out advanced consumer segmentation and content personalisation.
Alibaba recently introduced Uni Marketing Suite based on its so-called “Unified ID” that tracks user behaviour across all Alibaba digital assets such as Tmall and Taobao marketplaces, Sina Weibo, Youku and location services, Gaode.
Unified ID enables advertisers to target users based on previous touchpoints within Alibaba’s ecosystem, as well as tailoring product recommendations, and personalising storefronts based on an individual user’s browsing and purchase history.
Global brands such as Nestlé, Unilever, and Metro are already partnering up with Alibaba to leverage the data of its 460 million customer base for personalised product recommendations on official Tmall stores, as well as for micro-targeted advertising messages (source: PwC, Total Retail 2017).
On top of that, brands can also personalise the look of their official stores’ homepage and use omnichannel resources that integrate online and offline commerce.
Given that Alibaba and Tencent can also tap into users’ mobile payment data with Alipay and WeChat Pay respectively, they can also track what users buy outside their platforms as long as they pay with mobile, that is something that is out of reach for Amazon.
Growth of Logistics Systems
The e-commerce boom comes hand in hand with rapidly growing logistics systems. The express logistics market in China is now growing at a compound annual rate of more than 30%.
Chinese consumers are in a way spoilt with fast and often free delivery of their e-commerce orders which is enabled by cheap, labour intensive courier services.
This year on Single’s Day—Alibaba’s online buying fest that takes place every November 11—consumers ordered 812 million packages, across all Chinese websites, that needed delivery.
A vast and low-cost logistics system is a key factor that bolsters the spread of e-commerce among consumers as they can get express delivery at no or very little cost. It’s like having Amazon Prime without actually paying $99 per year to get fast delivery of your orders.
Online shopping over physical shopping
Online shopping is largely adopted by Chinese consumers, often favoured over physical shopping due to online-only promotions and deals. Buying stuff online has become so intrinsic to consumers’ shopping behaviour in China, that you rarely see people strolling around numerous malls that pop up across the country.
When talking to Chinese digital natives, they admit that shopping malls are no more than showrooms where they go in case they need to see a physical product before actually buying it online.
This trend has urged businesses to redefine the relationship between brick-and-mortar and online shopping, often referred to as ROPO (Research Online Purchase Offline).
China e-commerce has traits that make it distinctive from the rest of the world. These idiosyncrasies have to be taken into account when entering this highly lucrative and competitive market, that is projected to make up for 40.8% of total retails sales in China by 2021 (eMarketer, 2017).