Ecommerce in China –
what you need to know
A Point-of-View by Salmon –
working with clients in China to enhance
ecommerce performance since 2007
Introduction
China is the world’s largest ecommerce market. In 2016 the turnover of China’s online
shopping market reached 20 trillion yuan ($2896 billion).
Forrester estimates that by 2020 the market will almost double in size to reach $5792 trillion. It does
not come as a surprise then that a lot of brands are thinking of expanding their ecommerce operations
into China. While the Chinese market can undeniably seem attractive, there are some things that brands
should know about before moving in for the proverbial kill. This article points out some of the unique
characteristics of Chinese ecommerce to help you map out the key requirements and possibilities for
entry into the Chinese ecommerce market.
www.salmon.com
2
OUR VIEW on the Chinese ecommerce market
In 1978 Deng Xiaoping started on a course of
reforms that abolished the central planning
economy and introduced free markets to the
Chinese economy. As it has been less than 40
years since the economic reforms, the development
of brick-and-mortar stores with a large base of loyal
customers is lagging behind, and preferences for
traditional ways of doing business are also not
as strong as in developed countries. Therefore,
ecommerce has had comparatively more space
for development in China and has brought more
opportunities for newcomers to gain significant
market share. However, there is a major bottleneck
that currently limits the growth and opportunities of
Chinese ecommerce. This bottleneck is trust.
Many Chinese consumers and companies have
had unpleasant experiences of being the victims
of a scam or they have received substandard
products that were different from the products they
have seen in an online shop. These experiences
lead to decreased trust with the buyer. It is not just
negative online experiences that lead to buyer
distrust; many buyers have experienced decades of
being overcharged in brick-and-mortar stores, and
frequent media reports of product safety scandals
further contribute to a general feeling of distrust
towards sellers. It is, therefore, understandable that
many buyers are on their guard.
Winning customers’ trust should be a number
one priority. Companies who ignore the need for
customers to feel safe and be reassured about their
purchases do so at their own peril.
The story of eBay is a good illustration of this.
eBay, the first mover into the Chinese ecommerce
market, experienced very slow growth because the
users did not want to pay for goods upfront after a
few well-publicised scams had taken place on eBay.
After a few years, Jack Ma’s Alibaba moved into the
market with its Alipay solution where Alibaba only
sends the money to the seller after the customer
has confirmed that they have received the goods
and are satisfied with them, ie. the Escrow model.
This payment mechanism enabled Alibaba to
quickly gain the lion’s share of the Chinese
ecommerce market. Nowadays, first mover eBay
is relegated to being a niche player while Alibaba
is China’s largest ecommerce marketplace, with
Alipay as the largest payment service provider in
China boasting a 43.44% market share.
www.salmon.com
3
Why are
marketplaces so
popular in China?
Marketplaces have become popular because
they inspire trust in buyers. In addition to
aforementioned mechanisms like Alipay,
Chinese ecommerce marketplaces also use
all kinds of other measures to win the trust of
customers, such as checking the backgrounds
of the members, and vouching for both parties
(the existence of the company, the legality
of operations etc.). Customers can also rate
the seller’s service. This means that on a
third-party website, buyers can assess the
reliability and performance of a shop to a
certain extent. An own website lacks the
neutral third-party and does, therefore, not
create the same feeling of trust and security
with new customers.
Sophisticated B2C marketplaces have
been established for a long time. In many
cases, the marketplace also offers customer
management tools, online support, a mobile
app and other complimentary services.
For a long time B2B marketplaces were
simple online catalogues and, therefore,
lagged behind B2C marketplaces, but recent
cooperation between Chinese banks and
B2B ecommerce marketplaces have enabled
the latter to provide credit cards and other
financial services to their customers. The latest
figures available (for the first half of 2016),
show that the B2B market accounts for 75%
of the Chinese ecommerce market.
www.salmon.com
4
Alibaba is China’s – and by some measures, the world’s – biggest online commerce
company handling more business than any other ecommerce business.
Own WEBSITE APPROACH
The tendency for Chinese customers to frequent
ecommerce marketplaces can bring with it some
challenges for brands. On the marketplace they
have less control of the user experience and, in
some instances, a Chinese company may borrow
an existing foreign brand name and sell forgeries
under that name, even releasing advertisements
and marketing messages.
Clearly, there is a benefit to the buyers when a
brand’s own website can guarantee the authenticity
of the products. A further advantage is that a brand
has better control of data. Third-party marketplaces
are usually very hesitant to provide statistics and
data to their customers and often charge a large
fee for a limited set of data.
A final problem of ecommerce marketplaces is
that, with so many sellers vying for a customer’s
attention, the main way of competition is often
through price – which can hurt profit margins.
This trend is slowly changing as many online
shoppers become more affluent and are willing
to pay more for better quality of products and
services. The next challenge is how to express
these high-quality standards to buyers who are
browsing a marketplace with many competitors.
A common approach is to have both a website
and a shop on one of the online marketplaces.
The online marketplace is used for customer
acquisition. New customers can try out products
and build a trusted relationship with a brand.
Marketplaces are also often used for raising
brand awareness. Repeat customers can then
be directed towards the proprietary website with
promises of better customer experience and/or
better customer service.
When building a website for the Chinese market,
there are several things to keep in mind that are
different to Western standards. Chinese web design
is different to European or American web designs.
The webpages look a lot busier and many are
filled with links, gifs, pop-ups and flashy banners all
competing for attention.
In China, mobile sites are also seen as standalone from the desktop version of the website.
Often, a customer will only engage with the mobile
or desktop version. Even when viewing both
versions, many customers are unfazed by different
appearances and functionalities of the mobile and
desktop ecommerce shops.
However, in a market where the buyers are used
to automatically heading to one of the large online
marketplaces with their credit cards, it might be
hard to attract visitors to a brand’s own website.
www.salmon.com
5
SEO in China
There are two methods for Search Engine Optimisation: the direct way is to spend a large amount of money
to push a website up in the search results for a product for a short time. For example, a brand could pay
Baidu, the Chinese search engine (and website) to be ranked in the first few search results if someone
searches for “fashion”. The issue is that this can be quite expensive and only lasts for a short while.
Many Chinese internet users are also aware that the top search results on Baidu are often bought,
which further diminishes effectiveness.
The second method is to create content including the company’s name on a lot of different web pages.
For example, if a potential customer searches for electrics, he or she might be directed to articles about
electrical appliances and a brand could be mentioned in that article. If the customer then searches for the
name of the company directly, he or she can easily find the website. This is less straightforward than the
first method. Because it is more time-consuming, that also means it is not necessarily cheaper than directly
spending money on Baidu. But while it takes longer to rise in search rank through this method, the effects
last much longer.
Social media in China
The social media landscape in China is markedly different to the ones in the US or in Europe. Access
to a lot of the popular western social media sites is blocked by the so-called Great Firewall. The social
media sites that Chinese users visit are often homegrown versions of social media on the other side of
the firewall. As such, the names of these social media might sound unfamiliar to the uninitiated reader.
Nonetheless, a knowledge of the social media is important for marketing activities. In 2012 more than 90%
of Chinese netizens visited social media websites regularly. Native Chinese social media have become
the prime channel for many people to obtain information. A lot of ecommerce companies also use China’s
homegrown social media to interact with potential customers, to present new products, announce special
events and offer customer service and marketing messages. There are several social media channels often
used by foreign companies for advertising, including Sina Weibo, WeChat, Tencent Weibo, Zhihu, Douban,
Kaixinwang and RenRen. And there is one service that deserves special mention: WeChat…
www.salmon.com
6
WeChat (Weixin) and
Facebook are the leading
search social networks in
China and globally
SOCIAL MEDIA: WECHAT
Weixin (English name: WeChat) combines features
of Facebook and instant messaging apps. It is also
the most popular social media service in China.
However, WeChat is also much more than that as
it allows companies to set up shops on its service,
the so-called public channels. WeChat offers one
platform for consumers to:
■ Browse/Search for information on
public account
■ Check-out through a “one-click-payment”
■ Raise requests with customer service
WeChat is a good tool for customer acquisition
because it has a large customer base, and the
threshold for a consumer to engage with a brand
is low. On many Chinese ecommerce websites,
customers need to set up an account the first time
and afterwards they need to log in with a user
name and a password every time they want to use
ecommerce functionality on that website. Because
this process is cumbersome, customers will limit
the times they visit an ecommerce website. But
potential customers are present on WeChat every
day and will be constantly logged in.
More than 50% of WeChat users spend more than
1 hour a day on WeChat. This makes it much easier
for the customers to interact with a brand and visit
a public channel several times.
In addition to marketing and customer acquisition,
WeChat is a good tool for customer service and
is best for keeping in contact with (potential)
customers and enhancing the customer
experience. On WeChat users can also post
manuals, tutorials and pictures of the products.
WeChat is also useful for simple commands such
as checking the billing details and asking the price
of a product, or asking questions to a sales rep.
All these functionalities, combined with a constant
user presence, make for an extremely seamless
user experience which can result in a higher sales
conversion rate.
But for more complex customer journeys, a
website or an app will often deliver better
functionality. WeChat public accounts are,
therefore, often used as a supplement to
a website or presence on an ecommerce
marketplace.
www.salmon.com
7
Establishing trust with
customers is an over-riding
concern for brands in China
Marketing strategies
In Europe and America, brands are a way of differentiating the product from the competition through the
associations the customer has with that particular brand. But, in China, the primary function of a brand is to
gain the trust of customers. In the eyes of most Chinese buyers, a well-known high-end brand guarantees
high quality and a decent customer service, meaning it becomes easier for the customer to trust the
company selling that product.
Company brands are more important than product
brands in China. A company brand strongly
influences the way Chinese customers perceive a
product brand connected to that company brand.
In China, a good way to build a company brand
is through displays of corporate responsibility,
such as funding local schools or donating to
charity. Corporate responsibility is a way of gaining
customers’ trust and creating a distinctive company
culture that will reflect upon the company brand in
China. Many Chinese ecommerce brands have also
engaged internet celebrities, the so-called Wang
Hong, to promote a company brand.
■ Games where customers can learn about a
company’s history, manufacturing process and
the like with the possibility to send friends QR
codes to invite them
■ Customers can collect loyalty points and enter in
a prize draw when customers have accumulated
enough loyalty points
■ An Internet celebrity (the aforementioned Wang
Hong) presents the products and the companies
during a live stream show where customers can
ask questions or make requests
Here are some examples of successful marketing
campaigns in the past.
■ Customers can take a test (e.g. personality test)
and are then able to post results on WeChat
moments
■ Customers can go on a virtual treasure hunt and
learn more about the brand on the way
www.salmon.com
8
JD.com staff receiving incoming goods, sorting
products, and preparing shipments at the Northeast
China based Gu’an warehouse and distribution facility
Logistics challenges
Logistics can be a challenge in China; in the EU logistics is only 6% of GDP whereas in China logistics make
up 17% of GDP, which indicates that shipping is relatively costly. There are several kuaidi (courier) companies
with varying prices, varying levels of services and different geographical areas where they operate.
Selecting the right courier is an important decision to make because they might be the only physical
interaction that your customer has with your brand. For example, Shunfeng kuaidi has a reputation of being
fast, efficient, transparent, having good customer service, good packaging and a relatively low rate of items
going missing or becoming damaged during transport. If you sell high quality premium products online, a
more expensive but also more reliable, high-quality courier service is the way to go. However, a courier
service might not cover all areas in China. For remote provinces or villages, China Post is often the only
option – but it is also notoriously slow.
www.salmon.com
9
Legal can be a stumbling
block and is one reason
why many sellers turn to
ecommerce platforms
Legal aspects
According to Chinese law, every company
engaging in ecommerce and with an own website
domain has to apply for an ICP License. An
additional license is also required for companies
that want to embed videos or podcasts on their
ecommerce website. This has to be applied for at
provincial government level and can sometimes be
hard to obtain for foreign companies
Furthermore, data protection laws in China are
deliberately vague and hard to interpret. This
enables the government to shut down ecommerce
operations that are deemed undesirable. Indeed,
there is a political risk in operating in the Chinese
market. In the past, the government has revoked
licenses of companies for political reasons.
Fakes are widespread, and on WeChat,
marketplaces or social media websites, another
company could have set up an account in your
brand’s name or might use your logo or content.
Through pressure by the Chinese government,
there have been improvements in addressing these
issues. In particular, Alibaba is now policing its
website more strictly to remove fake products and
fake accounts.
Depending on the products that your brand sells,
there are certain restrictions and regulations that
might apply to you. For instance, there are strict
rules regarding selling alcohol and for products
like diabetic foods, and feminine hygiene products.
A pharmaceutical license is required which comes
with a long list of requirements that can be difficult
and costly to meet. Cosmetics have to be tested on
animals before they are allowed to be sold in the
Chinese market.
The great firewall of China blocks foreign IP
addresses or makes the websites extremely slow
to load. This means that companies who want
to sell their products in China need to run their
Chinese ecommerce website on a server located in
mainland China or risk customers not being able to
reach the website.
www.salmon.com
10
How Salmon
can help
Salmon is a global ecommerce consultancy
and the largest in the global WPP network
of companies. Its China operations are
spearheaded through a team of ecommerce
experts in its Beijing office. Through this local
expertise, we can leverage our knowledge
of establishing market penetration and
development within the unique, dynamic
market – and markets – of China.
Get in touch with Salmon via
+44 (0)20 3858 0061 or [email protected]
www.salmon.com
11
ABOUT SALMON
Salmon is a global digital commerce consultancy –
the biggest in WPP’s network of companies – that
defines and delivers market-changing solutions and
customer journeys for the world’s leading brands.
Established in 1989, with operations in London,
Amsterdam, New Delhi, Beijing and Melbourne,
Salmon clients include Argos, Asian Paints,
Audi UK, DFS, Halfords, Jumbo, LloydsPharmacy,
Premier Farnell, Sainsbury’s, Selfridges and Sligro
Food Group.
For more information,
call: +44 (0)20 3858 0061
email: [email protected]
visit: www.salmon.com
©2017 Salmon Ltd. All rights reserved. All company and product
names, brands and symbols mentioned herein are brand names
and/or registered trademarks of their respective owners.