Mobile Chinese online shoppers are transforming the economy

Mobile Chinese online shoppers are transforming the economy

Mobile chinese online shoppers

On Singles´ Day 2016 (November 11), China´s E-Commerce(Mobile chinese online shoppers) giant Alibaba smashed its own sales record with a turnover of almost $18 billion. With the help of enlisted celebrities such as actress Scarlett Johansson and soccer legend David Beckham Alibaba registered more sales than America´s Cyber Monday or even Black Friday. Thanks to its expanding middle class, the rise of online-shopping in low-tier cities and an “E-Commerce penetration beyond first-mover product categories such as apparel”1, China has turned into the largest and fastest-growing E-Commerce market on the planet.

Powerful drivers for E-Commerce

Even though the growth rates of the overall economy are slowing, retail sales are growing at double digit rates because China´s transition into a consumer society is making visible progress. This rebalancing of the economy is reflected in a rising wage share of GDP2, a trend that has reversed falling rates with the help of Beijing´s 13th Five-Year Plan. Among other important targets, this key plan aims at boosting online consumption and expand the service sector. Final consumption, according to Bloomberg, now accounts for more than half of economic output.The driving force behind this significant development is China´s middle class, which will rise to more than a third of the population by 2030, according to the Economist Intelligence Unit.As a consequence China´s consumer economy is projected to grow by about half until 2020.

The main engine of additional retail growth will be online sales. The World Economic Forum is forecasting that “E-Commerce will become a far more important retail channel, driving 42 percent of total consumption growth, 90 percent of that coming from mobile E-Commerce.”After penetrating much of the online markets in high-tier cities, brands can expect nearly as many online shoppers as a new source of growth in the country´s low-tier cities. An estimated 150 to 200 million people in this part of China are already online, but they have yet to begin shopping through the internet on a larger scale. The ratio of consumers that have purchased apparel online during the past six months is eight to nine times larger in big cities like Shanghai than in low-tier cities in the enormous hinterland, according to reports.

Why China is really different

China´s digital retail landscape is unique. At almost 14 percent of all retail spending, E-Commerce has a significantly higher share than in most industrialized economies. At the beginning of this decade, according to the World Economic Forum, online transactions in China made up only three percent of total private consumption. But with the number of online shoppers having tripled since then to 410 million, the ratio has risen to 15 percent. In 2016, for the first time ever, the amount of time adults in China spent with digital media, surpassed the time they spent with traditional media.6

Mobile is leading E-Commerce

Since China jumped much of the fixed-line phone era, and with companies like Alibaba and China Telecom feverishly distributing low-cost smartphones to rural areas, mobile E-Commerce has already asserted a much bigger role than in most other large countries. Mobile E-Commerce already accounts for 51 percent of all online sales. The global average is at around 35 percent. Clearly, China is the leading force of the worldwide transition towards m-commerce.

According to McKinsey, “mobile payment penetration in China went from zero in 2011 to 25 percent of the population in 2015.”Alibaba, China´s largest digital ad market player, is expecting $20 billion mobile ad revenue by 2018.According to Alibaba´s news website “Alizila”, China´s biggest e-shoppers “spend a whopping $45,000 a year online.”In order to pamper this precious clientel, Alibaba has created a membership program with a shopping passport, personal account managers and special events like wine tastings and automobile test drives.

With rising salaries and sustained low unemployment, consumer confidence in China remains high. But consumers are becoming more selective, they are shifting from mass products to premium products, and their growing consumption power is driven by different factors that make it more difficult to manage this increasingly complex market. Consumption by upper-middle-class and affluent households is growing fastest in terms of income. Consumption overall is growing fastest in smaller cities. And with regard to the different age groups, a young generation, born in the 1980s and 1990s, is about to become the dominant force in the new consumer society.

Consumption motives and purchase decisions

But who are these consumers? What are their attitudes? How do they make purchasing decisions? What and where are they buying? And who do they ask for guidance and advice before they buy a new product?

Already, half of all digital consumers turn to social media when they do their product research or try to find recommendations. They expect detailed and reliable information from online retailers, and their expectations are still rising, making social media an extremely important channel for brand managers and marketing executives through which they need to communicate with consumers and educate them about their products. Bear in mind that family and friends are considered to be much more trustful sources than the government.

Pricing, promotions and return options will certainly help to boost sales. A large majority of online shoppers in China, more than two thirds in fact, do research on a desired product on mobile devices while they are in a physical shop. A smart brand strategy will therefore have to consider both channels in order to maximize sales. Consumers need to touch and experience products, if possible. In China, the mobile phone or tablet will be the preferred device for online purchases much more often than in Europe or North America.

Emerging market consumers also become more selective, they spend more money on lifestyle products, entertainment and services. They ask for quality AND experience. And they are increasingly trading up, moving towards the premium segment of the respective markets. But bling and status alone is not enough anymore to elicit purchases of a brand. Value becomes even more a key part of the proposition. In China, there is rapid growth in online sales for products that are scarce in brick-and-mortar stores, among them imported food and beverages. The most popular products purchased online are groceries, apparel, electronics, music and cosmetics. When it comes to the payment of online purchases, there is growing competition against credit cards. Payment platforms like Alipay and services like WeChat Pay are quickly gaining ground.

Recommendations for global brands

“Companies will need a new playbook to capture the coming wave of growth”, comments the World Economic Forum on China´s changing consumer market.10 Creating an effective digital commerce strategy is certainly one key element of this complex undertaking. The analysis should begin with identifying the largest and fastest-growing age groups. China´s millennials, who are right now entering adulthood, are possibly the most promising age group.

Their brand personality is rather unique. They don´t want to go with the mainstream, they are not burdened by China´s past, they are socially engaged and extremely well connected. And their willingness to spend is higher than in any of the preceding generations. They are so much mobile that brands need a mobile-first strategy. Social media are the center of even their purchasing habits. The millennials very much trust reviews and recommendations by family and friends.

The mighty 3 – Baidu, Alibaba and Tencent – have conquered so much market share that Western brands need to target their customers in some way, with many European companies using more than one channel. German products are in very high esteem with Chinese online consumers. Tutorials are very important, and you need to employ beauty influencers as brand ambassadors. Communicate in both directions and give your customers a voice. Offer exclusive benefits and deals. And finally, interactive Games might significantly improve your results.

Read also:B2B Companies Increase Spending on Brand Strategy

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