By almost any metric, from mobile phone penetration to the automotive industry, China’s consumer market moves fast. But perhaps nowhere have Chinese consumers moved faster than the transition from purchasing at brick and mortar retail stores to eCommerce, catching many of the world’s largest retailers off-guard. Showrooming and price comparisons are now commonplace, and it is the large Marketplaces that have come to dominate China’s eCommerce sector.
According to McKinsey, approximately 90% of all eCommerce purchases are made in a marketplace, not a brand’s individual website. Yet for international brands they serve as a Catch-22, ignoring these channels leaves a lot of money on the table, not to mention placing your brand and its message at the whim of others. To jump in with both feet and participate means incurring significant upfront costs with little guarantee the investment will have a meaningful ROI.
Below is a rough outline the top 3 marketplaces in China that account for roughly 85% of all eCommerce in China:
Taobao is the eBay of China on a massive scale. A C2C platform that allows just about anyone to list their goods for free and then charges for advertising, it is usually both the first and last stop for Chinese consumers as they look for the best price on international goods. Here products range from extremely poor knock offs to the genuine article. Perhaps nowhere on Earth does the phrase “you get what you pay for” apply more, and even then paying top dollar ensures nothing. To sort out the good from the bad, power users of Taobao are avid readers of customer feedback and are highly likely to provide feedback themselves.
Most importantly for merchants, Taobao is where middlemen shoppers known as ‘Daigou’ (代购 ) generally go to cash out on the goods they have gathered from abroad. Daigou shopping is estimated to be a $50-75 Billion market today, and forecast to be $160 Billion by 2018. (For any merchant of any size, go to taobao.com and enter your brand in the search bar and let me know what you find in the comments section).
Tmall is Alibaba’s answer to the free-for-all that is Taobao. Greater restrictions are put in place for companies listing products as well as enhanced monitoring. A B2C platform, it is China’s Amazon and then some. Since its inception in 2008, it has come to be one of the most trusted sites in China to make a purchase. Brands foreign and domestic have flocked to list their products on what has become the world’s largest ‘mall in the cloud’. From large retailers like Walmart to umbrella brands including P&G, to luxury brands including Burberry and Calvin Klein, Tmall has positioned itself as the default location for US businesses to access China’s consumer base directly. While items are often more expensive than they are on Taobao, the consumer knows that they are getting the genuine article.
For international merchants, Tmall is now considered the best place to make an entrance in China’s highly competitive retail landscape. While it isn’t inexpensive, setting up a virtual store on Tmall is far easier than registering a WFOE (Wholly Foreign Owned Entity) or finding a Chinese partner that both truly understands your brand and has your best interests at heart (the latter proves particularly elusive to this day). The key consideration for international merchants is not IF they should list on Tmall, but WHEN. The site offers significant advantages and access to more than 100 million consumers. Standing out from the crowd is a key hurdle, and one that few have accomplished cheaply.
If Taobao is eBay and Tmall is Amazon, then JD.com got its start at Bestbuy.com and has quickly branched out to include additional categories and become . . . Amazon light. In a recent coup, JD signed Luxottica and Sephora, making the first of what will hopefully be many moves to give international brands a serious option to Tmall. While JD.com is marginally more expensive than Tmall when it comes to fees, the advantage is that it is easier to stand out from the crowd and reach your Chinese audience, especially if your competition has already cemented a foothold.
What this means for Merchants:
China’s eCommerce market is huge, and current brand awareness of your product in China should drive your decision making. For those who find themselves on Taobao through no effort on their own, I humbly suggest two takeaways:
There is a market for your product
Don’t fight your ‘Daigou’ resellers in the courtroom, compete with them elsewhere
You no longer need a physical presence to gain traction in China. If Chinese shoppers are aware of your brand to any extent, give them an option to purchase your products in a setting where they are confident of getting the real thing rather than a cheap (or expensive) knock off. Depending on brand positioning and the competitive landscape, Tmall and / or JD.com present two viable alternatives to expanding your consumer base while keeping some control of your brand in a foreign market.
However, these marketplaces should not be considered a complete solution for a brand’s China efforts. Engaging with your customers, gaining insight into who they are, why they value your brand, and delivering your message requires a more comprehensive solution, one I will go into in Part 4 of this series.