Chapter 8 Selling to China: The World’s Largest Economy with Extraordinary Purchasing Power
China is one of the world’s largest economies with an extraordinary purchasing power and a growing population. Even though starting business relations there may be challenging, Western online merchants should not be put off by a high entry barrier.
In fact, making the effort to overcome this challenge can turn out to be a real deal maker for many European and American online sellers. Or a gateway to … the Promised Land of ecommerce.
Just bear in mind, that 80% of the Chinese ecommerce market is controlled by the giant Alibaba.
Alibaba’s sales are higher than those of eBay and Amazon combined.
Alibaba comprises several primary divisions, including Taobao and Tmall. Taobao is for private persons and small businesses. It is C2C, whereas Tmall is B2C with payments facilitated by Alipay (the Chinese equivalent of PayPal).
Main characteristics of the Chinese marketplace and consumers
The Chinese online shopper may be different from what you have experienced thus far. Chinese consumers are well-informed, inquisitive and online-shopping-literate, which means we can actually learn a lot from them.
Chinese ecommerce market in numbers
- 1,420,062,022 – Population
- 57.7% – Internet penetration
- 533.32 million – Population online shopping
- 15% – Population shopping online from abroad (forecasted to reach 25% by 2020*)
Online buying behavior
The top 3 regions where Chinese buyers shop overseas (2013) are the U.S., Japan, and the UK. To better understand how to succeed in the different reality that is the Chinese market, it is crucial to understand the profile and needs of the local consumer.
The Chinese consumer:
- Pays attention to the price but is also brand-conscious, which stems from the importance of keeping face and social status in their local culture.
- Is willing to pay extra for a brand name that would raise their social status. According to research carried out by IDEO consultancy, a large number of young migrant workers whose earnings are less than 5,000 yuan (USD 830) per month will spend a month’s wages on an Apple iPhone.
- Is mistrustful when it comes to online payments made on various websites. Hence more trusted third-party systems, such as Alipay, are preferred.
- Loves brands that have a history, heritage and a strong position, such as Chanel.
- Is informed and active: Takes time to research the product of interest. Social media channels and product-related comments are of greater importance than advertisements when it comes to finalizing a purchasing decision.
- Is happy to try new brands, which is quite challenging for sellers seeking to win loyal customers. On the other hand, it also gives them a bigger chance of being tried out.
- Loves discounts and promotions.
- Wants personalized communication with brands via social media. Over 90% of online users have a social media account, compared to almost 70% in the US.
In order to gain the trust of Chinese customers, the goods that you offer should be placed in a local webshop that is:
- hosted in China,
- translated into simplified Chinese,
- offering payment methods typical to the local market,
- offering customer support for 16 hours a day via phone, email and live chat,
- ensuring that the returns are managed locally.
Popular product categories
According to the Tmall Global survey, the types of products from abroad that entry-level consumers were most keen on are fashion, baby and maternity products, cosmetics, consumer electronics, food, and nutritional supplements.
What the Chinese buy from abroad
The Chinese buyers love brands that have a history, heritage and a strong position, such as Chanel. Quality and authenticity appear to be the factors lacking on the Chinese consumer market.
Not only are local products perceived as cheaper and of lower quality, but there is also the problem of fake Western brands being traded in China. There is quite a lot of distrust going on.
Logistics, delivery, and shipping
The shortage of high-quality logistics providers is often a source of many issues like lost parcels, damaged goods, poor return procedures and the lack of special service.
Payment methods preferred by the Chinese
Alibaba is the leader as far as online payments are concerned. The mobile app version of Alipay, Alipay Wallet, is the most popular mobile wallet in China. It also joined Sino Corp to create a payment option, enabling quick payments by scanning a QR code on Sina Weibo.
Alibaba’s platforms account for approximately 76% of m-commerce transactions in China. 23% of mobile payments are made through mobile payment systems, e.g. Tenpay or Alipay. In fact, Chinese consumers are going from cash to cashless at a more rapid pace than many western countries.
Over half of China’s Internet users access the web via their mobiles. 300 million people shop online in China and mobile shopping is on the increase. 69% of Chinese buyers have made a purchase via their smartphone (in comparison with 46% of U.S. buyers). Alibaba’s platforms account for approximately 76% of the total amount of m-commerce transactions in China.
Over 90% of online users have a social media account, compared to almost 70% in the US. Hence, Chinese consumers expect personalized communication with brands via social media. China is the biggest consumer of smartphones, which again is a source of shopping opportunities.
Alibaba offers a cross-border solution, enabling Western online merchants to sell directly to the Chinese shopper. Alibaba and similar platforms are convenient options, yet bear in mind that they don’t seem too attractive financially.
The reason is clear: there is too much competition, especially from local sellers. Hence, the current tendency for foreign sellers is to focus on alternatives, such as brand owned web shops and WeChat stores.
Benefits and challenges of selling to China
China becoming the next global consumption superpower is closer to reality than ever. The number of customers shopping online has dramatically increased and has overtaken the USA.
Entering the Chinese market with your goods will open your business to an incredibly high number of potential customers. As long as you follow some traditional rules to gain their trust, you’re all set to make a profit on the Chinese market.
Be sure to identify your target consumers and update your offer according to their needs. If you are selling luxury products and worry about your prices being too high – do not! The Chinese are known for their love for Western brands, luxury goods, and cosmetics, and they are ready to pay a lot for them as owning such products is associated with a higher social status.
One of the biggest advantages of spreading your sales to China is the possibility to benefit from additional holidays that are associated with shopping for bargains in China. Make sure to adjust your ecommerce schedule to the Chinese calendar.
The Chinese love any kinds of promotions and discounts.
Take advantage of dates such as the Chinese New Year or Singles Day on November 11th – the biggest online shopping day in China. In 2013 Alibaba recorded $5.6 billion in sales on Singles Day, whereas in comparison on Cyber Monday 2013 the sales reached $1.7 billion.
One of the biggest challenges for the Chinese marketplace is the size of the country and long distances that can make delivery a tricky and long-winded process. This is said to have been improved and heavy investment has resulted in retailers now being able to deliver merchandise to most cities within 2-4 days.
Additionally, if you want to sell in China, you will definitely need to do research, giving special consideration to the following factors:
- The language barrier, not only in terms of grammar and vocabulary but also the alphabet,
- Lack of familiarity with the local page design,
- Logistics to more rural areas,
- The complex regulatory system and a complicated bureaucratic system.
Chinese consumers seem to be well ahead compared to the rest of the world, and it could be us learning from them, not the other way around.
Those who haven’t started selling in China yet are encouraged to give it some thought, depending on what they have on offer and their ability and willingness to overcome the various challenges bound up with this venture.
If sellers figure out how to meet the needs of the demanding Chinese buyers and can establish consumer trust with high quality and authenticity, they increase their chances of a true ecommerce success.
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