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E-commerce in China | A Social and Mobile Future

Posted in E-commerce on June 17th 2014
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COO and Co-Founder

Everything is social these days—we play games with total strangers online, we post vacation photos on every social media platform under the sun so that our friends can comment, and we check forums and reviews before splurging on a particular smartphone model. Even activities that used to be solitary—jogging for instance—have been given a social layer; now apps let us compare our mileage with other runners.

The power of social media is even more pervasive in online shopping. How many times have we bought something just because we saw it featured in a blog somewhere last week, or overheard friends discussing about it on Facebook? We may not be aware of it, but a big deal of our purchases (whether online or from physical retail stores) are influenced by the social media we frequent.

Now, social wouldn't be where it is if it wasn't for the instant gratification we get from our mobiles. Whether it is posting pictures of your dinner or a new outfit on WeChat moments or being social through mobile apps, social and mobile are more connected than ever!

Just ask the Chinese—social media plays a big part on how they spend their money and mobile has increasingly become the "how" when it comes to online purchases.

What’s So Special About E-commerce in China?

It’s a different crowd in China, far different from Western shoppers. This can easily be concluded from an observation made early on by Jack Ma, former English teacher now mogul of China’s most popular online retailer Alibaba which he started in 1999. Last May saw the company preparing to release its IPO, which analysts estimated would raise approximately $20 billion. At that rate, it might even beat Facebook’s own IPO from back in 2012.

And to think that Alibaba began as a simple B2B website, facilitating transactions between Chinese manufacturers and small businesses.

So what were those observations about Chinese shoppers? Two things:

  1. First is that many Chinese don’t use credit cards, which naturally poses a problem for e-commerce sites. Ma’s simple workaround was to create Alipay—a service which allows customers to deposit money in a bank account, after which the money is kept in escrow and released to the seller only after the customer has received the goods. The escrow system has cultivated a sense of protection among vendors and buyers, which has encouraged them to do more business.

  2. The second observation is that Chinese are part of a culture that encourages and places a high value on savings. How do you convince shoppers to let go of money then? Again, Ma’s simple solution was to offer the basic services of his website free for both buyers and sellers. Once customers realized the value they were getting from Alibaba, transactions came flowing in. And so did profit. In a 2009 interview, Ma was quoted saying:

"A lot of people thought I was stupid and crazy when I said customers are No. 1, employees are No. 2, and shareholders are No. 3, but that's our philosophy," he says. "Shareholders, I respect them, but they're No. 3."

By identifying the wants, needs, and special circumstances of its customers—both the vendors and the public—Alibaba has made itself an indispensable and trustworthy service, the default go-to for everyone who wants to buy or sell anything.

Through diversifying its customer base to cater to other segments in society, Alibaba has spread into other highly successful ventures—Tmall (B2C), and Taobao (C2C)—which have become the biggest players in the Chinese e-commerce market. Although not quite a worldwide household name yet, when Alibaba does achieve that status, Amazon and eBay are going to face some pretty intense competition.

M is for Mobile

As reported by Tech In Asia, out of the estimated $274 billion that Chinese consumers will spend online shopping this year, over $50 billion will be from transactions made on mobile phones. This represents double the 2013 figures and it's only expected to continue to grow exponentially year on year, powered by Taobao and Tmall. From last year alone, m-shopping has seen a growth of over 165% compared to just 35% for e-commerce. Any business that doesn't have a mobile strategy will miss out big time in the near future.

The Power of Social

Despite Alibaba being a e-commerce giant, you don't have to be a big player to survive in the Chinese e-commerce market. Smaller businesses also find success in the online retail world thanks to social media. Social media levels the playing field, enabling SMEs to compete with big brands like Amazon, eBay, and yes, Tmall and Taobao too.

Here are some of the ways social is shaping e-commerce in China:

Special Interests

Often social media is built around specific interests or niche groups which means that members of that network are passionate about their interests to begin with. That makes it easy for brands to target them, knowing they are already receptive to a specific product. A good example of a brand using niche social groups as part of their marketing strategy is Lancôme. Not only have they created their own Chinese community ROSEBEAUTY around the brand, but have also set up a beauty group on Kaixin001, one of China's most popular social media sites, to drive traffic to their community and increase sales and brand awareness.

Discovery

Time and again, social media has been an effective tool to discover new things to try out—whether that’s music, books, coffee shops, hair salons, artisan chocolate, etc—companies use social media strategies to boost their presence, whether through organic sharing, paid ads or endorsements. The sponsored Facebook below showed up on my news feed a couple of days ago and it's the perfect example of a company hoping you will discover their products/services through social media.

Word of Mouth

Never underestimate the power of word of mouth and people's propensity to over-share. As McKinsey reports, “An independent survey of moisturizer purchasers, for example, observed that 66 percent of Chinese consumers relied on recommendations from friends and family, compared with 38 percent of their US counterparts.” Clearly, the e-commerce market in China is fueled by word of mouth—the more positive and the more viral it is, the more successful the campaign.

Now, if people are taking their word of mouth influences from online reviews and the like, the results might not be as positive as they might hope. "Astroturfing"—the practice of posting fake positive reviews on behalf of a company and/or negative news about their competitors in order to sway public opinion—is a common occurrence within Chinese social media, as companies hire posters to disguise themselves in forums and social networks and then hold scripted discussions about certain products just to influence buyers’ decisions. One of the most high profile cases, was an orchestrated attack against Apple, which was quickly uncovered when paid celebrity posters flooded Weibo at the same time to post messages about Apple’s “biased warranty and customer service policies” but forgot to delete the timing notification instructions off the messages. Oops!

However, Astroturfing isn't reserved for e-commerce only, it is widely known that it plays quite a big role in the country's politics too.

Celebrity and KOL Endorsements

Just as word of mouth is a powerful driving force in brand consciousness, celebrity and key opinion leader endorsements have undeniable power too. Snoop Dog and Kim Kardashian reportedly make $8,000 and $10,000 respectively per tweet. In China, consumers take the word of their favorite celebrities quite seriously, especially now that those celebrities are willingly engaging with fans in social media. Not all celebrity endorsements are good though.

Integration

Embedding Buy Now links within Weibo posts and now WeChat latest venture into the online payment and gifting sectors, e-commerce is fully integrated within social media, making impulse buying that much easier.

What's In Store for E-commerce in China in the Future?

We've used Alibaba's example here to illustrate just what it is that makes an e-commerce venture successful in China. Of course, it would be naive to think that most businesses can achieve that level of success, especially when you consider Jack Ma was a pioneer in the e-commerce landscape which in 1999 was nowhere near as saturated or competitive as it is now. However, given how unpredictable online businesses can be, today's biggest players might not be around forever as other game-changing companies—one that's more aggressive, more flexible, and future-proof—takes over.

Two things are certain for now—social networks and mobile are shaping e-commerce in China. With the rise of low-priced yet top-of-the-line smartphones in the country, more and more people will be going online, becoming comfortable with shopping online. For better or worse, those dynamics are changing the way the Chinese view their relationship with wealth, consumption, and status. What influence this has on Chinese cultural values as a whole, only time will tell.