March 11, 2021
Welcome back to the Mercury Ecommerce Newsletter.
This month, we’re exploring how to expand your ecommerce business to sell directly to Chinese consumers. We hope you find it helpful.
Why you should care about expanding into China
China is committed to expanding imports and driving a domestic-consumption powered economy. Slashed duties and tariffs, coupled with robust demand for foreign products, spells opportunity for western brands. Xinhuanet Deloitte
Market size of cross-border ecommerce retail imports in China from 2016 to 2019 with a forecast until 2022 Statista
Understanding the landscape
Chinese consumers use super apps. Super apps, like WeChat, are single apps with multiple functions, usually including a payment system. That means mobile users can use third-party services without downloading separate apps. SPG Global
Super apps are so successful in China thanks to a homogenous market, large unbanked population, government support, and mobile-first user population. Emerline
Unlike in the West, in China there is no distinct separation between ecommerce and social media. Integrating ecommerce with social media (social commerce) enables consumers to find products they wouldn’t usually look for on an ecommerce platform.
WeChat and Little Red Book are prime examples of how social commerce is modernizing the traditional ecommerce industry by changing how retailers and customers interact with each other. Digitalcommerce360
Western brands are successfully entering the Chinese market:
We spoke with Ashley Dudarenok, Founder & CEO of Alarice, a China-focused social media agency, and ChoZan, a China insights and digital training company, to understand exactly how ecommerce companies are breaking into China.
Ashley is a China marketing expert, entrepreneur, bestselling author, and vlogger. She's a LinkedIn Top Voice in Marketing, a Holmes Report Top 25 Innovator, and made Thinkers50's Radar Class of 2021 as a China digital marketing and trend guru. Her top-rated YouTube business vlog, Ashley Talks, covers the Chinese market, consumers, and social media.
Why do you recommend more ecommerce businesses consider expansion into the Chinese market?
China is the #1 online retail market in the world and it is only going to get even bigger. Mainland China is focusing on their dual-circulation program; apart from selling to the outside world, they also want to increase domestic consumption.
Let's talk about product selection. What types of foreign products are in high demand in China?
For many product categories, non-Chinese, foreign/western brands just fit better, meaning there are lots of opportunities. These categories include: in body/on body—where ingredients are the key (e.g. snacks, cosmetics), mother and baby, luxury goods, and anything with a story/heritage plus a great product.
Do I need to be a large, established brand to be successful in China?
Chinese consumers are willing to try new things. However, because the market is so over-supplied, there are a lot of options for Chinese consumers, so you need to be known and seen in China. So it’s not about the size of your business, it’s about the focus and resources you need to put into the market.
If you are planning to do an organic-China in 2021, it isn’t going to work. If you’re trying to do China as an afterthought, it isn’t going to work. China needs to be your #1 priority, and that takes focus, money and time.
It sounds like expanding into China is a costly, yet worthwhile endeavor. Assuming I want to invest heavily in China, what are some of the top marketplaces to sell on, or should I focus on selling from my own website?
There are over 60 platforms that are unique to China. In China, we do not use standalone websites to do ecommerce—a website is a business card, or basically an about page. The market has evolved so that social media and ecommerce are hard to separate.
In the US we have separate apps for different functions, like Paypal for payments, Facebook for social, Amazon for selling, etc. In China, ecommerce is built into million-in-one apps and well-integrated ecosystems. There is a merger between ecommerce and social, with their own payment systems, super apps, and collaborations. So it is less about individual platforms, and more about ecosystems.
What are some examples of these ecosystems? How are they different?
Examples include Alibaba, Tencent + JD, Bytedance, Meituan Dianping, and more.
JD is the world’s largest online retailer—they purchase, store, and sell directly to consumers.
Alibaba’s Tmall is a marketplace where quality foreign brands go to sell to Chinese consumers.
Alibaba’s Taobao is a consumer-to-consumer marketplace where you need to be a China registered business to sell.
Pinduoduo is something in between ecommerce and social media platforms; it’s perhaps the purest social commerce model to date.
China’s ‘pure social media’ platforms are also evolving. Weibo, RED, Douyin and many other social media platforms are becoming more and more like ecommerce platforms, offering live streaming, shop checkouts, integrated services, and closed loop ecosystems.
How do I know which ecosystem to focus on?
When you enter this market, the first step is to get your strategy right, as you cannot be on all these platforms at one time. So you need to do research on your consumers, you need to understand who exactly you are targeting in which cities and why, and on what platforms these people are spending most of their time.
Then, you go to those platforms and start with them first. Often it involves either JD or Tmall, or sometimes it involves two or three social media platforms where you start off by just selling through bloggers.
I am not physically located in China. How do I survey Chinese consumers?
It’s best to hire a research team on the ground to assist. You will need good China consultants for the big things. You need to research and survey people; do 1:1 interviews. Depending on the niche you are trying to occupy, it could be an easy survey to give you the major direction, or you [may] need to go all in and do a very specific kind of study.
If you run a survey in-house it will be hard to reach and secure targeted focus groups [to determine] if survey participants are in your target market … it’s always better to hire a research team on the ground to assist.
After hiring a research partner, what other partners will I need if I am going to be successful in China?
It takes a village to succeed in China. After hiring a research consultant, these are the three most important partners you will need:
Can you explain in more detail what exactly a TP partner does?
TP partners, simply put, are your online distributors in China. They will give you sales projection estimates in China. They will manage your supply chain, customer service, logistics, and even media buying on Chinese ecommerce platforms.
How do I find a good TP partner?
There are thousands of TPs out there, big and small, all focused on different industries. Often, one does an online search and finds 10 companies, then begins speaking with them. Another way is to go to Alibaba site and check who’s an official/endorsed TP in your region/industry. Then there’s the word of mouth, of course. Most successful TP placements happen when you use all 3 of the above techniques to pick the TP that fits your circumstances.
What should I look for when evaluating TP partners?
You should be focused on choosing a TP partner that has enough staff to answer client inquiries. Chinese consumers are very spoiled and very sophisticated. 70% of all orders in China are assisted orders, meaning consumers will ask about the product— do you have it in a different color, can you give me a gift with the order, etc.
People don’t care whether it’s after work hours or 3 o’clock in the morning, they will ask the same question to a few vendors, and the vendor that replies gets the order.
Assuming I hire a marketing agency in China, how much is it going to cost me?
More than you probably think. Marketplace advertising and advertising in general is much higher cost in China than it is in the US. A lot of brands from the US come into China with unrealistic expectations based on US KPIs. Likely, you will be losing money in China for the first 8-18 months.
China is a long-run play. First, you need to build brand recognition, then you can start making profits. Often 30-50% of your first two year’s turnover in China goes into marketing. Marketing is done inside marketplaces (such as Tmall or JD) and outside of the marketplace (RED, Weibo, Douyin, etc). You spend about 50/50 for each part.
Thanks Ashley, this has been very helpful. Where can readers go if they want to learn about how to break into China?
You can feel free to connect with me on LinkedIn. I will be very happy to hear from you.
China is an expensive, long term play. While the Chinese consumer market presents a tremendous opportunity for foreign ecommerce brands, it is by no means a simple walk in the park. You will need to pick the right strategic partners and invest heavily for the long term if you want to be successful in China.
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The Mercury Team