While you may be lamenting the need to constantly evolve your marketing mix to stay ahead in China, you can rest assured that even WeChat faces a similar challenge.
Although China’s super app hit 1.083 billion monthly active users in September last year, each sending any average of around 45 messages a day, WeChat faces headwinds to stay relevant to Chinese consumers. Readership for articles referred by friends on Moments has been dropping and Tencent’s share of screen time is being cannibalised by newer, easier-to-use and more entertaining alternatives such as short video platform Douyin.
That’s why all eyes were on WeChat’s founder Allen Zhang’s four hour speech at Tencent’s conference last week, about how he plans to reinvigorate the app to mitigate the risk of it becoming obsolete. Zhang got philosophical in acknowledging that WeChat has lost the veneer of authentic discovery that endeared it to users, because people were becoming too sensitive to their online personas on Moments.
Across the board, Chinese consumers are seeking more authenticity: from the way they travel, to the brands they buy, to how they project themselves on digital platforms. Women ‘beautification’ app Meipai discovered this as user numbers plunged 55% as Chinese women sought more natural and less formulaic portrayals of themselves. WeChat is hoping to evolve from photoshopped and choreographed Moments feeds, to a more real account of what people are really experiencing. To enable this, WeChat has launched a new video-streaming feature, not unlike Instagram’s feed, so people share their lives in real time, not through carefully curated photos and messages. Even the user interface aims to keep it real, with the typical ‘send’ button, replaced with ‘this will do’ to remind people their social feed doesn’t have to be airbrushed and polished.
Another area in which WeChat is pinning its hopes to counter the app’s saturation and encourage more engagement per user is Mini Programs. The WeChat-embedded ‘light apps’ are already hugely popular, but curiously, the majority of traffic isn’t coming from the famous mini programs you may have heard of, but rather the long-tail applications used by niches such as parent-teacher groups or your neighbourhood grocery store. Given WeChat is installed on virtually every smartphone in China, app developers are not concerned with having to create separate tools for Androids and iPhones, it is one simple app, seamlessly installed and launched from the comfort of WeChat. Tencent is thinking, if ‘there’s an app for it’ wouldn’t it make sense to make it a Mini Program?
Something that hasn’t received due airtime is the impact that the new ecommerce laws will have on WeChat. Commerce is one of the areas showing great promise on WeChat, with its transactional nature providing a logical way for the platform to grow revenue. Yet many of those stores have been run by smaller vendors and daigou, attracted by WeChat’s low barriers to entry. The new laws mean that it will be a lot more trouble to set up and maintain a simple WeChat store – or any online store – with the new taxation and reporting requirements. There are already signs of changes in the way smaller vendors promote their wares on WeChat as they try and skirt the laws, but for many, the effort won’t be worth the reward.
Regardless of its challenges, WeChat remains China’s super app with no other app being better positioned to evolve and stay relevant to Chinese consumers. To Allen Zhang’s and Tencent’s credit, they have recognised that they need to do this. There are some good lessons for any brand in China – you may be ‘killing it’ in China today, but you need to constantly review your position to stay that way. China Skinny can assist you with just that. Go to Page 2 to see this week’s China news and highlights.
There has been much uncertainty about China’s new ecommerce laws which will launch in earnest on 1 January 2019. The unknown direction around cross border ecommerce and the daigou trade is likely to have kept a few businesses up at night.
We are thankful to finally have some clarity around the new laws. Here are some of the key highlights of the new regulations announced on 21 November, with the new, complete translated cross border list here.
Cosmetics, Health Food, Infant Formula & Other Consumer Imports
Cosmetics, health food, infant formula and other retail products sold over cross border ecommerce will remain exempt from mainland Chinese registration, filing and certification. Speculation that cosmetics not tested on animals could not continue to be sold in China through cross border ecommerce has been laid to rest.
Exporting to Chinese Consumers through Brand.com Sites
The new regulations state that brands selling direct to consumers in China from their website or ecommerce platform based outside of the Mainland will be required to register their platform with Chinese customs.
Increased Purchase Limits
The single purchase limit will increase from ¥ 2,000 ($288) to ¥5,000 ($720) and the yearly purchase amount increases from ¥20,000 ($2880) to ¥26,000 ($2,745) per year. Cross border purchases that fall within the increased limits will be exempted from duties and receive a 30% discount on consumption tax and VAT.
Deterrents for Daigou
We noted in October that the road for daigou was likely to get tougher as Beijing tries to redirect cross border sales to the legitimate channels. The new laws have confirmed that all daigou who advertise online need to register with the government and pay full import taxes. In recent months, customs have stepped up airport checks, while Chinese courts have jailed several merchants for up to 10 years for tax evasion. We expect larger daigou will continue their trade, however tens of thousands of smaller operators are may see this as just too much trouble and quit – easy come, easy go.
Legislation as expected
Overall the regulations are not surprising news. Of late, Beijing has been promoting its stance towards free trade at events such as Davos and this month’s CIIE. Closing the door on cross border commerce would have seemed hypocritical and contradictory. Similarly, tech giants such as Alibaba and JD have invested significant sums in building their cross border businesses, and would have been in Beijing’s ear about the benefits of the service. Discouraging it would have driven more purchases to the less-trackable grey trade. Many Chinese consumers have also become fans of cruelty free cosmetics, imported health and formula products; taking these options away would have caused quite a stir, which no one needs right now.
The law is positive for cross border ecommerce and will see it continue to grow. However in most cases cross border should be seen a stepping stone to a wider range of online and offline sales channels in China. This will raise awareness and accessibility for your products and decrease your exposure to law changes and other risks. China Skinny can assist in developing a strategy for this.
China’s daigou are both loved and loathed, depending who you talk to. For Chinese consumers, they deliver quality western products – from vitamins to luxury handbags – that are sometimes unavailable in the Mainland, often at a lower price, and more likely to be authentic. For consumers in places like Australia, they have been known to empty supermarket shelves of products like infant formula, prompting supermarket chain Woolworths to reintroduce the two-tin limit this week.
Some brands detest daigou for undercutting their traditional sales channels and diluting their branding with rogue messaging, however brands who used to oppose them have increasingly embraced daigou as another channel to build awareness and preference for their products. The success of brands like Blackmores, Swisse and A2 Milk in China can be widely attributed to the daigou trade. Even Unilever is targeting Chinese in Australia to sell their soup in the Mainland.
By some estimates, there are half a million people working as daigou globally, from large sophisticated operations, to easy-come-easy-go students studying abroad who can earn some extra money as easily as sending out a few WeChat posts. These foot soldiers can be another powerful marketing and advocacy channel, particularly when they are harnessed strategically.
Yet daigou can be a fickle bunch. Bellamys discovered this in 2016, when they alienated the same daigou who had built their brand in China and saw their stock price collapse by more than half and the CEO ousted. Bellamy’s isn’t alone with its reliance on Daigou. Earlier this month, the share prices of many of the world’s luxury giants took a hit as Chinese customs ramped up anti-daigou efforts with prosecutions for people bringing in over ¥5,000 ($728) of undeclared goods for ‘personal consumption’, with one flight seeing 100 passengers arrested after arriving at Pudong Airport.
The Chinese Government is another player in the daigou-loathing camp. They have little view into daigou trade and would much prefer legitimate cross border commerce through the big platforms so they can better monitor, control and tax imported products. Now there is also increased impetus as Beijing hopes to maintain consumption growth in light of the trade war and a slowing economy. Shifting some of the estimated $100 billion annual daigou goods trade to legitimate channels will further increase official retail growth.
The new ecommerce laws coming 1 January, although still vague, are likely to impact daigou in the most concerted effort yet to temper the grey trade. It is expected that daigou will be made to register with the industrial and commercial administration departments and pay tax on imports. This will include Daigou who have traditionally been less visible by conducting business on WeChat Moments and streaming on live platforms. Beijing is unlikely to be able to stamp out all daigou trade, but it can certainly have an impact as we saw with the daigou tax in 2016 which froze virtually all grey trade before being retracted.
The new regulations should be a wakeup call for many brands on the vulnerability of Chinese regulation and fickleness of the daigou themselves. Since 2016, numerous brands have shifted from having all of their eggs in the grey trade basket to more balanced strategies. For those who haven’t, you’d be wise to start as soon as possible. China Skinny can assist with identifying these risks and developing such a strategy. Go to Page 2 to see this week’s China news and highlights.
The brains trust at Amazon are likely to be scratching their heads wondering how thathappened. After spending hundreds of millions of dollars and 14 years to wrestle market share from the almighty Alibaba and JD-Tencent-Walmart syndicate, they have managed just a meagre 0.7% share of ecommerce retail in China. Ebay suffered an even worse fate after throwing hundreds of millions at China before effectively giving up on the market in 2006.
Yet in less than three years, ex-Google engineer Colin (Zheng) Huang has managed to defy all odds with his ecommerce platform Pinduoduo. Not only has he blindsided Alibaba’s rural operations, he has also surpassed JD’s daily user count by cleverly targeting China’s underserved smaller cities. 65% of his 343.6 million active buyers live in third tier cities or lower.
“The new consumer economy isn’t about giving Shanghainese the life of Parisians. It’s about providing paper towels and good fruit to people in Anhui province,” says Huang. The strategy has paid off. Pinduoduo’s IPO last week valued the company at $23.8 billion, catapulting him to become China’s twelfth richest person.
Pinduoduo has also changed the online shopping experience into a social one where users are constantly reminded of other shoppers and their friends incentivised to join – something that has a struck a chord with lower tier shoppers who have traditionally been less forthcoming about buying online. Every Chinese consumer loves a deal, but those in smaller cities are themost price sensitive, unable to resist ten boxes of tissues for $1.90, bed sheets for $1.50, umbrellas for $1.51 and PCs for $150, even if there’s a good chance of fakes. Unlike the search-focused interfaces of Taobao and JD which deliver thousands of results, Pinduoduo displays products more like a news feed with a few hero products, making the whole experience less overwhelming and more fun for many.
There are countless takeaways that we can learn from the success of Pinduoduo; here are four that we found particularly interesting:
1. Pinduoduo’s success is a metaphor for many businesses hoping to tap the China opportunity. They have gone beyond theovercrowded megacities and into the less glamorous outcrops in the hinterland. Given half of the 50 million new households expected to enter the upper and middle classes between 2016-2020 will be located outside of China’s top 100 cities, there is no shortage of opportunities out there. The right products, targeted in the right smaller cities, in the right way, can be very fruitful in China;
2. Pinduoduo is further proof that investing squillions in building your own app could be better spent developing a Mini Program inside WeChat. Users need a very good reason to download a standalone app, whereas something embedded in WeChat is seamless, hence the 62% of users who shop on Pinduoduo through their WeChat Mini Program;
3. The power of social advocacy shouldn’t be underestimated in China. Pinduoduo has done a remarkable job of tapping into shoppers’ WeChat contacts and taking them along for the ride by incentivising them with discounts, prizes and even free goods;
4. And lastly, much like we saw with Luckin Coffee a few weeks ago, even markets like ecommerce that appear to be sewn up by the giants can still be ripe for the picking. The speed, complexity and fragmentation of China’s growth is constantly opening up gaps and new opportunities, some which may turn into $23.8 billion operations giving the gorillas a run for their money.
But don’t go flipping the birdie to Alibaba and JD just yet – they may be expensive, hyper-competitive and in many cases unprofitable, but Pinduoduo is unlikely to be a white knight for many foreign brands at this point in time. The average order value is just $6, compared to $60 on JD and $30 on Alibaba’s platforms. Discounts as much as 90% are not a sustainable strategy we’d recommend for the guardians of premium products that form the faithful Skinny readership. But take the opportunity to learn some good lessons from Pinduoduo’s success, keep abreast of how it evolves and give China Skinny a call to ensure you have the optimal ecommerce and marketing strategy for China. Go to Page 2 to see this week’s China news and highlights.
A quick quiz to start this week’s Skinny: What is the most valuable marketing company in the world? Most people probably couldn’t care less, but there are a few folk in the industry who would say WPP. Whilst the company hasn’t had a great year, it remains the largest marketing company in the world measured by billings and revenue. The London-based conglomerate has a market cap of $18.9 billion, putting them ahead of the other well-known marketing companies such as Omnicom at $15.3 billion, Publicis at $12.6 billion and Interpublic at $8.3 billion.
Before using your guess on the familiar marketing giants, you may want to consider the lesser-known companies, like Focus Media. Last week Alibaba acquired a 10.32% stake in the company for $2.23 billion, which as of yesterday had a market cap of ¥162 billion ($23.8 billion). Focus Media is the company behind many of the digital advertising screens in streets, subways and elevators across 300 Chinese cities.
With the acquisition, Alibaba plans to collaborate with Focus to merge offline media and digital marketing, slated as an upgrade to “New Marketing” which will support the growth of New Retail across all sectors. Focus has ambitious plans to soon control 5 million terminals covering 500 Chinese cities and reaching 500 million consumers.
Powering the evolution of Focus’s screens will be Alibaba’s vast banks of consumer data from the more than 550 million online shoppers on its platforms, 520 million AliPay users, and potentially the hundreds of millions watching Youku videos, navigating with AutoNavi maps, taking Didi taxis, browsing on UCWeb, ordering food on Ele.me, cycling on Ofo, using Weibo along with the more than 100 other businesses Alibaba owns a share in. When Alibaba figures out how to truly integrate and harness its massive data, there will be few stones unturned in consumer knowledge that can help direct what gets displayed on advertising screens or whatever they evolve to. Throw that in with their facial recognition technologies and you’ll have Minority Report-type advertising folks!
Alibaba’s investment into Focus Media will support its irrepressible expansion into physical retail and further strengthen its presence across the whole customer journey. What does it mean for companies such as the WPPs and Omnicoms of the world? The continued structural shift in marketing and advertising will force them to evolve beyond their traditional services.
One thing we have found at the Skinny is that while big data is valuable in planning, marketing and product development, it is a complement, rather than a replacement, to human creativity for determining how to best push consumers’ emotional buttons. It is likely to be a while before any machine can do that. Based on the early stage talks involving Alibaba and Tencent to buy a stake in WPP China, the big tech companies may be thinking so too. Go to Page 2 to see this week’s China news and highlights.
Out for a lunchtime stroll in most Chinese cities, you may not get that refreshed feeling you get elsewhere in the world. China’s carbon dioxide emissions have grown almost 150% since 2000. Although growth has flattened out this decade, emissions have crept 17% higher than in 2010 when Chinese power plants emitted as much nitrogen oxide as the rest of the world’s cars combined.
Similarly, there’s a good chance that the water you showered in, washed your clothes with, cleaned the dishes and rinsed your food with was less than pristine with over 70% of the watersheds that supply water to China’s 30 largest cities severely polluted. Then there is the 19.4% of farmland that’s contaminated by organic and inorganic chemical pollutants and by metals such as lead, cadmium and arsenic.
It’s not breaking news that China’s pollution has been responsible for a sharp rise in respiratory diseases such as Asthma, caused cancer rates to soar, and contributed to host of other issues as far reaching as infertility and obesity. Pollution coupled with sedentary lifestyles from more white collar jobs and gaming, poorer diets and even rice consumption has seen 11% of Chinese suffer from diabetes and a further 36% are prediabetic. There are countless other ailments on the rise in China, but you get the point.
With the above factors an everyday reality of living in China, it is unsurprising that the H-word is on almost every Chinese consumer’s lips. Health is something that Chinese have proactively addressed long before microscopic pollution particles blanketed Chinese cities. Use of yin and yang principles have dated back since at least the 3rd century BC. Considering the changes in China just over the past generation, there are more reasons than ever to balance out the yin with the yang.
Virtually every category with a health label in China has been hot over the past five years, resulting in venture capital investments in healthcare growing from $1 billion to $12 billion in China between 2013 and 2017. This has seen some innovative world-leading companies evolve from China, such as Shenzhen-based medical devices company Mindray which invests 10% of its more than one billion dollar annual revenues in research and development – a rate unheard of with Chinese companies not long ago. Mindray is the market leader globally across several segments and is likely to be helped further by Beijing’s streamlining rules for drugs and medical device approvals last October.
One of the most exciting health companies coming out of China is Tencent-backed WeDoctor in Hangzhou. Hoping to become the ‘Amazon of Healthcare’ the $6 billion dollar company already has 160 million registered and 27 million monthly active users by focusing on unclogging bottlenecks in China’s struggling health system. The company is one of many less-traditional channels that health-related companies hoping to ride China’s burgeoning health segment use to sell their products.
Beijing’s three-year action plan on air pollution control released last week is likely to improve China’s air pollution, but many other health issues will continue to plague China for some time yet, accelerated by its ballooning elderly population. Demand for localised and well-marketed health equipment and medicines, healthy food, healthy living and even healthy holidays will continue to soar in China. Agencies such as China Skinny can assist to ensure you make the most of the opportunity. Go to Page 2 to see this week’s China news and highlights.
Just as live sports are helping prop up the old world of television advertising, they can also be a potent force in international relations and trade. We saw it with the ping pong diplomacy of the early 70s, and as sport becomes an important part of life in China, it will be an increasingly significant driver for geopolitical relations and the goods and services trade. FIFA, the NBA, snow sports and other physical activities are taking advantage of this. As proud supporters of rugby in Asia, China Skinny would be grateful to start seeing some real rugby love in the Middle Kingdom.
With the FIFA World Cup kicking off in Russia tomorrow, the trend is looking positive. During the month-long football festival there may be times visitors feel like they’re at a Guangzhou Evergrande Taobao match. Although China hasn’t played in a World Cup Finals since 2002, an estimated 100,000 Chinese are expected to visit Russia for the Cup, dwarfing the 10,000 football-mad English expected to be there – and their team qualified! On top of that, Chinese brands Hisense, Mengniu, Vivo, electric bike maker Yadea and Dalian Wanda are joining the party to plug the World Cup sponsorship gap.
Like many things in China, Xi Jinping’s passions and policy are helping drive China’s enthusiasm for the beautiful game. The avid football fan Xi hinted last year that China will be bidding to host a World Cup in 2030 or 2034 and will be a “world football superpower” by 2050. Feeding into the grand plan, Xi has announced that the number of football fields in China will grow from less than 11,000 in 2015 to 70,000 by 2020. China will have 50 million regular football players including 30 million students by then, and 50,000 schools will have a strong emphasis on football by 2025 – up from just 5,000 in 2015.
The 100,000 visitors are a sign of changing times in China. They illustrate how Chinese are increasingly able and prepared to spend big bucks on their leisure pursuits. Back in 2002 – when consumers were much less affluent than they are today – no more than 50,000 Chinese went to the World Cup Finals in South Korea and Japan when China was actually on the field.
The swathe of Chinese visitors ascending on Russia will have been further tempted by visa-free travel to its northern neighbour. On top of that, China’s blossoming relationship with Russia will also drive preference – as geopolitical circumstances usually do with Chinese travel trends. Russia seems to be the flavour of the month with Beijing as they look to provide a scalable alternative to Western ideologies. The friendship comes at a good time for China as its dog box is marred with imprints of South Korea’s THAAD, ASEAN-contested island building and river damming, Japanese-disputed islands and historic invasions, the encircling of India and territory skirmishes, undermining of Australian sovereignty, Europe’s wariness of Chinese investment, lack of reciprocal access and sporadic trade disputes, and Trump.
As a symbol of their bond, Vladimir Putin was presented China’s first ever “friendship medal” by President Xi at a lavish event broadcast live from the Great Hall of the People. Since becoming president, Xi has visited Moscow more than any other capital city and Putin said that Xi Jinping was the only world leader who celebrated his birthday. Putin was in China last week for the enlarged Russia-China led Eurasian SCO bloc meeting as the G7 floundered. Russia, which is managing its own diplomatic challenges elsewhere has recently signed a series of deals with China who announced relations between two countries were at “the best level in history.”
In short, this year’s World Cup couldn’t have been better timed for Russia to tap into the opportunity that China presents. For the Russian businesses that stand to benefit from an influx of Chinese visitors – let’s hope you make them welcome. Mobile payments and the slew of other China-ready initiatives will ensure they have a better time, spend more and advocate Russia to the masses at home. And good luck to the 32 nations who made it to the finals! Go to Page 2 to see this week’s China news and highlights.
In the first quarter of 2018 China’s GDP growth continued to bubble away at 6.8%, largely driven by consumption which accounted for 77.8% of the growth. Powering this critical economic driver is the ever-evolving millennial; higher-earning, freer-spending, and in many cases with child in tow or one not far away.
17.2 million babies were born in China last year – the population of the Netherlands – expanding the already-significant demand for child and family related products and services. A child born in China today will have parents earning 130% more than those born a decade ago. Their parents will be four and a half times more likely to have travelled beyond Greater China. The millions of new parents are more educated, open minded and worldly than any generation before them, and as a result are more inclined to Western products and lifestyles.
The shifting profile of Chinese parents has also changed the way they research and shop and the products they are seeking. Although parenthood remains steeped in culture and tradition and is heavily influenced by family structure, mothers are the least-trusting consumer group in China and among the most digital. They are large contributors to the rise of China’s ecommerce which grew three-and-a-half times faster than traditional retail last year. One of the fastest growing categories online is FMCG, where 43% of the value of products sold are bought by families with children aged below 14. Similarly, two-thirds of cross border shoppers have children, a result of easier access to trusted, safer products from abroad.
Yet family-relevant products aren’t exclusively focused around health and safety. Brands have found success catering to families’ busy lifestyles with products that are also attractive to kids. An example is animal-shaped dumplings that are easy to prepare within a few minutes. Products that understand and minimise those pain-points of hectic family life or contribute to the happiness of families are well placed to appeal to the lucrative segment.
China’s young families are an incredibly important demographic for relevant and well-marketed products. Yet for a larger share of Chinese at child-rearing age, parenting WeChat groups, imported infant formula and panda-shaped dumplings are not relevant. Despite initial enthusiasm from the loosening of the One Child Policy and youths having sexual intercourse earlier, Chinese millennials are becoming more indifferent about sex and less likely to be parents.
China’s fertility rate of 1.24% is even lower than Japan’s 1.46%. Slowing birth rates mean there remains plenty of opportunities in products and services unrelated to families such as health, travel, entertainment and fashion which can seize a share of spending that may have otherwise been used on childcare. Go to Page 2 to see this week’s China news and highlights.
In April 2016, pundits were predicting the demise of China’s cross border ecommerce channel after hefty new taxes were suddenly introduced on all online cross border trade. Fortunately, some slick lobbying from Alibaba and JD saw the new tax rates ‘postponed’ the following month and good old cross border was soon back on track.
Shaking off the scare of ’16, eMarketer estimated China’s online consumers spent $100.2 billion on buying products cross border last year. This is more than ten times China’s General Administration of Customs’ value, which announced last month that cross border imports growth rocketed 116.4% in 2017 to ¥59.6 billion ($9.4 billion).
A 2017 Tmall Global Annual Consumers Report published last week (in Chinese) by Tmall Global and CBNData, forecasted the 2017 figure at around $68 billion. Enormous data disparities are not unusual in China, which is why China Skinny typically cross-references a number of sources. From what we’ve seen, the cross border figure is around the $60-75 billion mark. Custom’s low numbers are likely to indicate that many products could be slipping through customs unnoticed, values may be fudged by exporters, or there is some dubious bookkeeping at the borders.
Getting back to Tmall Global’s report, an interesting insight was consumers born in the 1990s are the biggest spenders on cross border products. Last year they accounted for nearly 50% of Tmall Global users and 40% of total sales. The three biggest motivations driving them to buy imported products are trying new things, aspiring to own luxury items and anxiety over aging.
Beauty products, food & supplements and mother and baby products were the top selling categories on Tmall Global, helped by the 60% of households – and almost 70% in high tier cities – who purchased FMCG products online last year.
The top countries selling products on Tmall Global were Japan (baby & beauty products), USA (health, baby, bags), Australia (health, baby, milk powder), Germany (milk powder, dietary & nutrition, cups & kettles) and Korea (beauty). One positive development is that shoppers are becoming more adventurous, with the purchases from outside the top-3 countries breaking 50% for the first time. In 2017 there were 16,400 products from 68 countries on Tmall Global alone.
Yet behind the pomp and pageantry from ecommerce platforms, not everything smells quite so sweet. Cross border is heralded as providing certainty of authentic products direct from a trusted overseas source, but 40% of cosmetics products purchased from cross border platforms on Singles’ Day were fake according to a consumer association report. The issue is clearly real given Alibaba’s recent announcement to push into Blockchain for the channel.
On the subject of ecommerce, for our Shanghai-based readers China Skinny’s Mark Tanner will be joining an esteemed line-up of speakers at the Clavis Insight 2018 APAC eCommerce Accelerator Summit on March 28. The event is for brands currently selling online in China and looking to up their game, it is a complementary full-day event with limited spaces remaining. More information here. Go to Page 2 to see this week’s China news and highlights.
Talk about China’s remarkable digital consumer ecosystem is often dominated by ecommerce, WeChat and mobile payments. Whilst there’s no discounting their impact on the market, there are a host of other significant digital channels that are very relevant for Western brands looking to understand Chinese consumers and sell to them.
Have you heard of Kuaishou? It’s an Instagram-style photo sharing app with 400 million users which has evolved into a livestreaming and video platform. Kuaishou is valued at $18 billion, over three times more than mega-toy brand Mattel. The relevance of photo and video for Chinese consumers (and most consumers these days) should entice brands to consider the platform in their marketing mix.
Similarly Meituan-Dianping, best known as a restaurant and entertainment guide, is often likened to China’s version of Yelp, but is significantly hungrier with plans for ride sharing, hotel bookings and more. It has a market cap of $30 billion – a similar value to the West’s internet darling Airbnb. Foreign brands in the food, beverage, entertainment, lifestyle and tourism categories could be wise to take a look.
The current cool kid on the block Toutiao is most famous for its AI-powered news app with 120 million daily users. It also owns other apps such as the red hot Watermelon Video livestream quiz, musical.ly, and others. Much like Meituan-Dianping and Airbnb, Toutiao’s market cap is $30 billion.
Unlike a lot of the high valued tech companies of the past, many of China’s behemoths have healthy ways of making money. Chinese consumers are increasingly prepared to part with cash online, helped by the effortlessness of payment platforms. In fact, Chinese spent 270% more on apps in 2017 than 2015 – $35 billion. By comparison, American consumers spent $15 billion last year, a 75% increase over two years.
Chinese consumers’ obsession with apps is altering behaviour in almost every aspect of daily life in China -it is also shifting spending patterns. China’s big-spending online shopping females have finally been knocked from the top spot for digital spending by males, largely due to the explosion of gaming and, as a result, food delivery. That gives some hints to brands about another possible way to reach the often elusive Chinese male consumer.
They’re a few of the main ones – there are plenty more and then the fast-coming trends such as livestream quizzes and travelling frog games that are taking China by storm, all providing clues about how to unlock the potential of the mighty Chinese consumers.
Who are China Skinny? We are a marketing agency on the ground in Shanghai conducting research, building strategies, and executing them for over 100 multinational brands both big and small, across 20 categories. What’s your biggest China problem? Contact us to see how we can help. Go to Page 2 to see this week’s China news and highlights.
Glance across any Chinese park, restaurant or subway and it becomes quite clear that online video is one of the most popular channels in China. It is also one of the most dynamic. This is reflected by user numbers which has seen former market leader Youku-Tudou’s 325 million active monthly mobile users fall far behind market leaders Tencent Video and iQiyi with 457 million and 442 million respectively.
One of the interesting trends in online video is the paid subscribers. Whilst Chinese consumers have traditionally been used to getting much for free online (either by well-funded startups trying to acquire users or through pirated means), the masses are becoming increasingly prepared to pay for video content. A recent survey by China Netcasting Services Association found nearly 43% of online video users were paid subscribers to some form of video service – over a fifth more than last year. The main reasons are to get exclusive content and to skip advertisements. This represents the overall trend of a much-freer spending Chinese consumer who is prepared to pay a premium for things that will make their lives better.
For brands hoping to reach Chinese consumers, developing video content can be one of the richest and most engaging channels. There are a number of other possibilities for online video too – particularly for those who are prepared to spend. Advertising has long been an option, but it is about to get a lot more interesting on Tencent Video following the company’s announcement to bring together the wealth of data from its seven main business units. This will allow much deeper insights and targeted marketing – not just on Tencent Video, but WeChat and Tencent’s other apps.
As powerful as video advertising can be, KOLs can provide a more persuasive and seemingly authentic way to spread and amplify a message if done well. Although brands can drop significant budgets on KOLs, the return can be questionable on many campaigns as they don’t utilise KOLs’ channels as well as they could. Video blogging and related live streaming can be some of the most powerful channels where online influencers can bring your brand, products and services to life.
Some 470 million internet users in China follow these online influencers – 20.6% more than last year. 65.7% sought out videos with humorous and fun content from them. Videos through online ‘celebs’ can also help brands get to otherwise difficult-to-reach consumers, with 54.1% (257 million) of those followers living in third- or fourth-tier cities. Although those big name vloggers are mainly Chinese, there are a handful of Mandarin-speaking foreigners who are gathering quite a following.
A look at the formats for popular vlogs provides an insight into the overall psyche of Chinese consumers. Whereas vlogs in the West can be quite long, they are usually less than 2 minutes in China; representative of local consumers’ love of instant gratification and shorter attention spans for content. Many of these rules apply for other video formats that can be valuable in China’s market place, such as internal and B2B comms where video can be used to train staff, agents and retailers in an engaging format. Agencies such as China Skinny can ensure you maximise the online video opportunity.
On a slightly different topic, China Skinny is working with Westpac and the Australian Chamber of Commerce in Shanghai on the 2018 Westpac Australia-China Business Sentiment Survey. We’d encourage all of our readers who are Australian businesses working in, or with, China to participate in the Survey. The survey aims to provide a valuable insight into the health of the Australia-China economic relationship and provide you with a useful benchmarking tool to inform your business strategy. The collective view of Australian businesses will also help identifying areas that can be built upon and improved to assist Australian businesses in China. Click/tap here to participate in the 15-20 minute survey. We appreciate you taking the time to complete it! Go to Page 2 to see this week’s China news and highlights.
Earlier this month Beijing released a discussion draft of its Ecommerce Law that has sent China watchers and businesses searching earnestly for some clarity. It promises to dramatically tighten up the cross border commerce opportunities that make up one of the most important and fastest growing channels for foreign brands exploring the China market. Like many government mandates, it strikes a confusing contradiction; adhering to the trend of increased control over China’s online consumer space in the face of all the talk of China opening up to the world from its helmsman.
Whilst some details of the discussion draft are uncertain, it will send shudders to some imported brands selling in China. Foreign retailers will be unable to sell online in China without going through a platform controlled by a Chinese-owned entity with the relevant licenses. Whereas the vast majority of online sales currently go through these channels anyway – Taobao, Tmall, JD, etc – it doesn’t look positive for Amazon’s ecommerce business in China, who this month sold their China-based cloud computing hardware due to the new cyber security laws. It also provides little hope for foreign brand.com stores.
The draft also seeks to shut down online sales as a way to import illegal products into China. If ‘illegal’ includes products currently not allowed to be sold in Mainland China, it will dramatically impact the most popular cross border category: cosmetics and skincare, where foreign products can’t be sold in China if they aren’t tested on animals. Only approved products will make it through the gate so it is likely to affect many categories.
As the China Law Blog eloquently put it, “the plan is to funnel all cross-border e-commerce through a limited number of processing centers, all of which are controlled by the national government”. Daigou traders are unlikely to be tickled pink by the rules.
The unfortunate reality of the draft regulations is that they will make the already dominant platforms such as Alibaba and JD even stronger. As their listing and support fees can be a prohibitive expense for smaller brands and the platforms are getting more crowded by the day, it is becoming increasingly harder to even get a listing on the platforms, let alone be noticed.
The wonderful thing about China’s current cross border commerce environment is how sales are spread across many more channels – Alibaba’s platforms account for just a third of sales, versus three quarters of China’s ecommerce overall. Although most of the other cross border platforms are Chinese entities and won’t be negatively affected by the new rules, those foreign-based sites may not fare so well – a real shame given many successful foreign brands now in China first sold into the market from their own foreign-based sites.
Like many previous ecommerce-related laws in China, the devil will be in the finer details and enforcement, but the draft should send a clear signal about the direction of ecommerce in China and highlight the importance of not relying on one precarious sales channel. Agencies such as China Skinny can ensure you are best prepared for such a risk. Go to Page 2 to see this week’s China news and highlights.
Food and Hotel China (FHC), is one of the biggest trade shows in China and China Skinny was on the floor to scope out the latest trends, newest product entrants and to hear from attendees on their China experience. This year had less of the X-factor of editions past, but there were still main takeaways that hint towards new developments and indicate how ongoing trends are taking shape. Below are China Skinny’s top three takeaways from the 2017 show.
The land of pizza and cheese
Everywhere one looked there was pizza and cheese at this year’s FHC show. While there is typically a good showing it seemed as if this year there was enough cheese to feed China’s 1.4 billion people. There were parmesan rings, mozzarella sticks and flavoured cheese as well as bulk cheese. Much of the cheese was topping the pizzas that were being slung left and right. To indicate the range of pizzas there was even something called “Cake Pizza”.
The vast number of cheese and pizza offerings bodes well for the growing out-of-home dining market. According to the 2017 China shopper report, the value of dining out grew 10% from 2013-2016 compared to in-home meal prep at 3% and food delivery a robust 44% over the same period. The fact that products such as cheese and pizza were ubiquitous signifies that consumers are becoming more adventurous and increasingly have a taste for Western style products when out and about. This is a good sign for direct-to-consumer food sales too. As ingredients and dishes become more common outside the home, it’s more likely the Chinese consumer will try, become familiar with, and eventually buy for in-home consumption.
Western-style offerings are typically far fewer outside of Tier 1 cities (Shanghai, Beijing, Guangzhou, and Shenzhen). But with improving cold chain logistics and increased familiarity, lower tier cities are quickly following suit. But the offerings must be tailored to each specific area. China Skinny research across Tier 1-3 cities has found distinctly different styles and offerings between restaurants which reflect consumer preferences and their choices while buying for in-home. For example, restaurants in Shenzhen tended to a lighter fare and more subdued restaurant design. Chongqing proved to be adventurous in fare and lively in atmosphere, compared to a more sophisticated experience and food in Shanghai. These are representative differences to take into account when selling nearly any consumer product in China.
Differentiation between health claims is far and few between
Despite the clamouring over pizza and cheese the health trend is still going strong in China. It is estimated that China’s health food market will grow from ¥260 billion ($39 billion) in 2016 to ¥400 billion ($60 billion) in 2021.
More brands are positioning themselves as the healthy choice. Brands pushing the ‘healthy’ claim left much to be desired: many were too general in just saying they are the ‘healthiest’ or ‘the best’ which will be caught up by regulators who don’t allow superlatives. The relevant and differentiated positioning of a brand is vital as health foods are becoming less of a treat and more integrated into everyday diets.
While there are many brands trying to capture health-conscious consumers with general marketing, a few savvy brands were getting down to the core. Punchy, short claims are preferred among Chinese consumers. This is especially relevant for new-to-China brands, who are competing in an already crowded market.
Products lauding extra protein were among the most common targeted health products. The success of targeted products depends on a well-considered entry plan. Concepts like added protein may resonate with a specific target market, such as health and fitness aficionados. Other products used such claims as “gluten free”, something which is still early days in China.
In terms of other food products, the offerings were fairly standard. There were not as many inventive products or eye-catching packages as in years past. Additionally, a large majority of exhibition booth staff failed to spur excitement. If they engaged, they would meekly suggest to scan a QR code linking to uninspiring Official Accounts. Including a call to action, a personalized message or special offer to encourage engagement is likely to have gone over better.
In years past the number of inventive beverages have been impressive. This year there were only a small number of beverage innovations. A line of soy milk attracted a number of interested tasters and distributors while beautifully packaged Italian water is already selling in China and hoping to expand its presence to smaller tier cities.
China has become the largest bottled water market in the world, overtaking the United States in 2013, and it is projected to expand 58% by 2019. Coca-Cola, who sought to sell a $9 water in China earlier this year, is an example that just because a category is hot, doesn’t mean anything will sell. As Coca-Cola learned, price point isn’t everything, but it is a crucial part of the puzzle. Consumption habits vary by region, with domestic companies tailoring to meet the needs of local consumers.
The presence of foreign wines at FHC’s ProWine hall was notable. Australia, Italy, Chile, the U.S. and Canada all had a strong showing. The different offerings and regions were more expansive in years past. Exhibitors stated that interest was strong and knowledge among the passersby was stronger but still much education was needed.
Country of origin (COO) is vital in marketing wine and countries did well in presenting a strong front. But beneath the COO brands must remember Chinese consumers are still relatively new to wine culture. This can get tricky as Chinese consumers value a wine’s brand over its COO, grape variety or quality level. Zeroing in on consumers’ detailed perceptions of a brand’s qualities, including its COO, will help position wine brands to stand out among consumers. The wine sector in China continues to progress quickly and wine brands must keep pace to remain relevant.
The FHC show this year was as popular as in years past, but the lack of innovative products, packaging and marketing was notable. Staying inventive in your offerings and top of mind among Chinese consumers is an ever-evolving task. Get in touch to learn how China Skinny can help you enter or expand in China and for imaginative and resourceful marketing tactics.
Here’s some further encouraging news for China’s consumer market: in the first eight months of this year more babies were born into families with multiple children than those without – some 52% versus 45% in 2016. That will hearten the folk in Beijing who are seeking solutions to support its top-heavy population demographics, and should be music to the ears of brands peddling everything from infant formula to shared accommodation. During last weekend’s enormous Singles’ Day festival, baby products were among the top-selling categories.
Despite the increases, Chinese mothers continue to have one of the highest workplace participation rates globally, with 63% of females in the workforce versus 56% in the US and 50% globally. This is the result of a generation of the one-child policy, differing family structures which see grandparents caring for young ones and an admirable cultural belief that “women hold up half the sky.”
Even with the spike in those procreating, many Chinese remain uninformed on the subject. For example, more than 80% of adults in China have misunderstandings about contraception. This is the result of limited sex education and ‘birds and bees’ chats between parents and their kids. Sexual references are taboo in mainstream media and other channels. It was in 2015 when the big budget empress TV soap was taken off air to have Fanbingbing chest shots photoshopped out. Homosexual references are completely banned and even leggy models were even banned from car shows as Beijing does what it can to keep its population pure and innocent. This is reflected in consumer tastes and confirmed in numerous China Skinny research projects which has found an aversion to certain images deemed too sexy, with distinct preferences for the cutesy.
Yet behind the Hello Kitty knits and gaming youth, sexual innuendos are becoming more commonplace in China. Any visit to the local convenience store is a testament with battery operated devices, lubes and contraceptives taking prime real estate in point of sale displays by the counter. In a movement that represents greater self-confidence towards previously frowned upon areas, lingerie has become one of the fastest-growing fashion categories in China growing 20% annually for almost a decade.
There are much less subtle indicators of a trend towards an increased liberalness. Durex is leading the revolution by tiptoeing around the sensitive subjects to create engaging and timely communications that resonate with consumers online and get shared en masse. And while Durex and other foreign brands lead the category, a host of local condom makers are coming up with new innovative products to break into the fast-growing category.
Like everything in China, what appeals and is acceptable to consumers is constantly shifting. Hit the mark, and a brand can attain a cult-like following. Miss it, and there can be an anti-following. Agencies such as China Skinny can assure you are on the mark. Go to Page 2 to see this week’s China news and highlights.
The big bull of ecommerce festivals comes charging into town this Saturday to much anticipation. Singles’ Day and the week that follows will see millions of frenzied electric scooters ferrying an estimated one billion deliveries to offices and apartments across the mainland. If you wanted proof that the Chinese consumer has become a force to be reckoned with, then this is it.
Purchases during the 24-hour period and presales represents over one-fiftieth of China’s annual ecommerce sales, with some brands even making half of their annual turnover on the day. However, many sellers will not make a dime from it. For a number of brands it is an opportunity to accumulate much-needed sales numbers and consumer reviews which are vital to Alibaba’s, JD’s and other platforms’ search results algorithm. It’s also important for consumer perceptions given they are much more likely to buy products that already have sales histories and glowing reviews, further emphasising the need for top notch end-to-end service, even with the added volume from the festival.
Although consumers are very much in a spending mindset, it is not just a case of throwing up a promotion on Tmall and expecting the masses to tap ‘buy’. There will be 140,000 brands – including 60,000 international ones – promoting 15 million products during the festival, so much like the rest of the year, smart marketing tactics will help.
Alibaba has taken the day from just being an online shopping fair to an annual celebration firmly cemented in the festival calendar, arguably the one that generates the most buzz after the Spring Festival-Lunar New Year celebrations. Its evolution to an entertainment-focused event has been vital to its continued growth. Every year, countless pundits have commented that its growth rates couldn’t continue, but with every 11.11 it continues to soar, growing 32% last year to $17.8 billion. This year is likely to be tougher for such growth, with consumers already showing fatigue from the endless ecommerce festivals playing on word associations with dates and China’s festivals. But falling on a Saturday will help, particularly with the entertainment and brick & mortar focus is likely to see sales figures continue to climb.
For a consumer who has been conditioned to expect more glitz and lights with each subsequent promotion, Alibaba has to deliver an ever-more engaging experience. Alibaba is following many of the themes from last year, with big name celebs herded together in a TV countdown gala again directed by David Hill. Tapping into China’s growing love for hip hop, Pharrell Williams will be making the trip to Shanghai’s Mercedes Benz Arena to perform and give the inevitable fly hand gestures and selfies with Jack Ma. ¥250 million ($37.7 million) worth of hongbaos (red envelopes) will also be there to sweeten the deal.
Offline continues to be an ever-bigger part of 11.11, with Alibaba opening 60 new ‘Retail-powered Pop-up Stores’ across 12 cities in China taking inspiration from innovations such as Lancôme’s augmented-reality virtual makeover app at Singapore’s Changi Airport. There is also the conversion of nearly 100,000 stores throughout China into “smart stores.” If you’re in China, it would be worth going to have a look.
If your brand is participating in 11.11, we wish you success and sustained growth following the event. If you’re shopping on the day, we hope you find some good deals and are entertained.
In other news, China Skinny is seeking a smart, passionate marketing manager to join our all-star line up in central Shanghai. If you or a friend is looking to be titillated during working hours and learn oodles about China marketing and consumers, please let us know. Click here for more information. Go to Page 2 to see this week’s China news and highlights.