An interview with Mark Finsterlin of aquarius Asia.
E-commerce is one of the hottest topics worldwide, as online giants like Amazon shake up the traditional retail business. China Focus speaks to Marc Finsterlin, Managing Director of aquarius Digital Consulting, about the unique characteristics of e-commerce in China. Marc has been living in Hong Kong and Shanghai for four years, advising foreign companies on their digital strategies and business models.
What differences are there in e-commerce between China and Germany?
Firstly, there is a big difference in the internet cultures of both countries. China is a late starter and joined the online world in a time when smartphones were already very common. Hence, the smartphone is the primary device used to go online for many people in China. Western users have been introduced to the online world via desktop PC. In China, 70% of internet access is mobile, while in Germany it is only around 40%.
Therefore, in China mobile commerce is of much higher significance. In China there are 1.1 billion mobile phone subscribers, 170 million being smartphone users. Of those, 40 million already use their mobile phone to shop! This will translate into an approximately 50 billion RMB mobile shopping volume in 2013, 5% of total online sales. The high number of mobile users, but also the low bandwidth generally available, has implications for online shops: websites have to be optimized for lower connection speeds with minimal flash graphics and animations to allow a smooth shopping experience for all users.
Another factor is trust: providers in the West have built trust for online transactions. Just think of all the eBay users that are willing to make advance payments to sellers they have never met or even spoken to before. In China, online shopping developed a rather bad reputation and is widely associated with counterfeit products and poor quality. Because of this trust disadvantage, it is hard to sell no-name products in China. To develop a successful e-commerce business, a strong brand is essential.
A further difference is noticeable in the shipping and delivery practices. In China, the logistics network it is not very well developed yet, especially outside the bigger cities. Sometimes deliveries will be late or damaged. On the other hand, some companies in China already offer same-day delivery.
Another difference can be seen in customer service, which in China is often provided via online chat, while telephone services or email are not widely used. Chinese consumers expect immediate answers to the questions they have with regard to the products.
Last but not least are the payment methods: credit cards are not widely used yet in China and most transactions are made on a cash-on-delivery basis. But online payment services such as Alipay and Tenpay, which work in a similar way to Paypal, are growing quickly.
Which consumer goods are suitable for e-commerce in China?
In general, almost everything can be bought online in China, even pre-decorated Christmas trees. The dominant categories are clothing, electronics and cosmetics. In contrast to the West, books, music and DVDs are less important because they are widely available for free as counterfeits or download. iTunes, for example, does not sell music in China, only apps such as games. Similarly, travel has yet to reach the same vast significance as it has in other markets.
How do you recommend your clients to advertise their products?
China is â€śalways onâ€ť â€“ the relevant target groups spend more time online compared to their German counterparts, especially on their mobile phone. But due to censorship and strongly government influenced media, people do not trust traditional advertising as much. They rely more on their friends, their peer group and key opinion leaders for information. Therefore social media has a much higher relevance in China.
However, it does not help a company much if they already have an online and social media presence in their home market because the landscape in China is unique. All the international players like Facebook, Google, Yahoo!, eBay, YouTube, and Twitter have little or no relevance in China. They are either blocked or unsuccessful compared to their Chinese rivals. As a consequence, companies have to acquaint themselves with Chinese companies like Baidu, Youku, Sina Weibo, Renren, Taobao, for example.
Moreover, companies need to realize that China is huge and, thus, characterized by substantial regional differences, more comparable to a continent than a single country. Marketing strategies need to be tailored to meet local preferences, even online!
As in the West, Search Engine Optimization and Marketing are important tools and many Chinese search engines have no problem ranking your site higher in their search results for payment. Google, for example, would never do that but for Chinese search engines this is a legitimate source of income.
Another difference can be seen with key opinion leaders that have a big fan base on Sina Weibo (similar to Twitter). These people are generally willing to promote your products for money; something that would not work so easily in the West. If Western bloggers or celebrities would use their Twitter accounts for blunt advertising, it would probably discredit them and reflect badly on the brand.
Given I am a brand owner of a product group, which steps would you advise me to take to enter the Chinese market?
Firstly, it is important that you have a brand with potential, something with history and a story to tell and products that offer something new, not available in the market yet. For foreign companies, this usually means they need an established brand in their home market with high quality products.
Secondly, you need to make a commitment to the market and be ready to make a certain investment to build up your brand. This does not necessarily mean that you have to have the financial power of a multinational. Smaller companies can benefit from using one of the existing platforms like Tmall and access their infrastructure and reach.
Thirdly, you need to take some time to test the market. Launch a trial on Tmall for some insight into which products work at which price points and for which target groups. The beauty of digital marketing is that you can test a range of different options with little investment before rolling them out on a bigger scale.
Furthermore, you also need a dedicated team of local specialists or a strong local partner. Managing the Chinese market from the head office overseas will be difficult due to time differences, technical constraints, and market specialties.
What is the future of e-commerce and how can companies capitalize on its potential?
I think companies have to realize that e-commerce is just another equally as, if not more important channel for selling products and should be treated with the same attention to detail as traditional retail. As a brand you will want to have flagship stores online and offline, but also be present in department stores and maybe have an outlet shop. In the past, some companies just used the online shop to dispose of last seasonâ€™s collection and e-commerce was only one smaller part of the whole sales department. This way of operation can be highly brand damaging. Companies need an e-commerce strategy! And it needs to be integrated with marketing, branding and the overall retail strategy.
In the future, traditional retail will see new challenges emerge in the e-commerce field but there is also much potential for synergy. At aquarius, we say that online will become no-line, meaning the borders between the traditional channels will dilute. This trend is especially driven by mobile commerce, which on the one hand increases competition but on the other hand also offers new opportunities.
But you have to manage this smartly to not let the channels cannibalize each other. With the right strategy we believe you can push the overlap between your online store and traditional retail store down to less than 5% of your efforts, meaning 95% of your spending will create new business for your company.
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