The digital economy has completely revolutionized retail business, especially in China, where offline-online transitions have been adopted particularly swiftly. China’s ecommerce spending craze growth is slowing, but still clocked an impressive 26.8% growth in the first half of 2015, when Ecommerce consumers in China spent US$253 billions about 10% of total retail sales in the nation. The following buzzwords will help you understand the latest ecommerce dynamics and the popular digital means of payments used in China.
O2O (Online to Offline) commerce identifies a business strategy that incorporates element of both online and offline commerce in order to maximize the quality and consistency of customer experience. More precisely, this strategy aims at tempting potential customers from online channels to physical stores using a variety of tools belonging to both online and brick-and-mortar marketing.
This kind of strategy was successfully intiatied by China’s largest website ad alliance, Panshi Network and has become increasingly popular in China since 2013. In August 2014 three of China’s biggest businesses –Tencent, Baidu and Wanda – teamed up in a RMB 5 million ($814 million) partnership that will focus on O2O. The aim is creating an interconnected platform to compete for Chinese customers against Alibaba.
Chinese companies are increasingly understanding the importance of making online services more engaging by mixing them with offline elements. A simple example is the incredibly fast diffusion of QR codes in China, a widely scorned tool in most Western countries, which has taken over Chinese business operations of all sorts, thanks to its ease of use. In 2014 the number of QR codes scanned in China increased by 350% from 2013 to an monthly average of 156 million.
O2O is an ‘umbrella concept’ which may well contain different kinds of business strategies and tools, including click-and-collect and digital wallet software.
Alipay is an online payment platform launched in 2004 by Alibaba in China. The platform has more than 300 million active users and controls approximately 54% of the online payment made throughout China.
Alipay wallet can easily be linked to individuals’ bank accounts given its compatibility with more than 65 financial institution and credit circuits, including Visa and Mastercard. In 2014, Alipay processed more than 80 million transactions per day on average, thanks not only to payments made on online marketplaces but also to brick-and-mortar retailers that offer Alipay as a mean of payment. Alipay is integral part of the Alibaba ecosystem and has gained popularity thanks to the ease of use and security of online payment on Taobao and T-mall marketplaces. Since 2009, Alipay’s expansion included various offline services, handling online and offline payments, including utility bills, ticket booking, restaurant meals, taxi rides and purchases in many participating retailers in China and increasingly abroad.
Alibaba’s plans for Alipay included investing in financial services. Since 2013, Alipay wallet can be connected to Yu’e’bao, allowing Alipay users to invest in a money-market fund and gain interest on deposited money. The popularity of Alipay in China is nowadays undeniable and it is crucial for Western companies to adapt to this trend in order not to lag behind.
WeChat has more than 600 million monthly active users. Tencent, the holding company of WeChat imputes the huge success of the app in China to the investments made to create a whole ecosystem around it. Unlike its Western counterparts, WeChat incorporates several services and more than 10 million third-party apps.
WeChat’s complex architecture combines a messaging app , social media, subscription and service accounts and WeChat payment/wallet, among other services. The wallet can be used in a similar fashion to Alipay by connecting it to a bank account and allowing for fast payment among WeChat wallet users, as well as purchases of related services such as taxi, movie tickets, bill splitting and others.
In order to insure users against fraud and theft, WeChat partnered with PICC, the largest insurance company in China to realize its wallet service. This move has made it easier for subscribers of WeChat to feel confident in their transactions. This move has been clever both domestically and internationally, given that WeChat may become a straightforward substitute to credit cards, especially in areas where the latter are not yet widely used.
Wechat payment has also revolutionized one of the traditional customs of Chinese New Year. On Feb 18 2015, more than 1 billion red envelopes filled with cash, hongbaos, a traditional form of gifting, have been exchanged among Chinese citizens. Of this 1 billion, Chinese ‘netizens’ has sent more than 20 million “WEnvelopes” through WeChat wallet exchanges.
Even though the world of retail is moving towards a constantly higher degree of dematerialization, a new trend is bridging online and offline shopping experience of customers. Click-and-collect is a process by which the consumer orders goods online and collects his merchandise at a local store. It is literally a compromise between online and in-store shopping, a way to maintain the physical shopping experience while allowing the customer to choose among a wider variety of products and streamline the purchasing process.
The main benefits of click-and-collect for the consumer are saving delivery or shipping delays, costs and better fitting into customer’s schedules who maybe unsure if they can be present when the delivery arrives. It also saves time since it prevents shopping in congested stores. Click-and-collect may also enable consumer who are cautious in using the online payment at the collecting point.
This solution is advantageous not only to customers, but also to retailers, whom are able to process orders more efficiently and keep their product offer wide and varied.
Given the fact that Chinese consumers are more ‘digital-friendly’ than their western counterparts, the relatively low cost and speed of delivery services, and lower car usage, click-and-collect has been slow to catch on in China relative to the US and Europe. However, some big retailer chains are betting on this trend to take off in China. Since 2013,Amazon has been offering pick-up points in China’s main cities, reporting more than 50,000 packages have been collected in Shanghai Amazon points. Walmart also offersclick-and-collect purchases in its main stores in Shanghai, Beijing and Shenzhen, by leveraging the knowledge accrued in other markets. Customers can use a dedicated app to check the availability of products, pay through online wallets and collect their orders in-store avoiding queues.
One alternative twist on click-and-collect that is developing in China are smartphone-linked pick up lockers run by companies such as Gooday and Sposter. By the end of March, Sposter’s 19,558 locations had handled 116 billion packages since the service was launched in late 2012.
Despite slowing GDP growth in China, continued income growth is seeing more Mainlanders reaching the necessary standards of living to engage in travel. In 2012, Mainland China surpassed both Germany and the U.S. to become the largest spenders on international tourism. The United Nations World Tourism Organization released a report on Chinese traveller habits counting more than 83.2 million Chinese citizens travelling abroad, a 395.7% increase since 2002. The following buzzwords will help you understand the changes and massive influx of Chinese travellers, their habits and the latest trends going on in China’s travel market.
Chinese FIT (Free and Independent travellers)
For years, one could only imagine Chinese travellers as red-hat wearing masses following the umbrella adorned with the typical gold stars. The stereotype of Chinese tourists pouring out of packed tour buses is progressively becoming outdated with Chinese travellers becoming more inclined to travel independently and opting for tailor-made itineraries.
A study conducted in 2013 by the Chinese International Travel Monitor (CITM) revealed that around 70% of Chinese travellers abroad are travelling independently. The following are several reasons for this behavioural shift.
First of all, the average age of outbound travellers has steadily declined in the last decade with tourists under 45 years old composing more than 90% of China’s overall outbound travellers. Younger generations perceive group travel as old-fashioned and prefer to organize their trips independently.
Secondly, there has been a cultural shift towards freedom and authenticity while travelling mainly incentivised by social media. China’s obsession with sharing, rating and recommending online has made it possible for travellers to have a larger quantity of information in order to make travel decisions independently. In addition, social media has spread the idea that group travel is something “for dummies”, for first-timers and for 乡下人 (xiangxiaren), namely peasants, thus making it even more unattractive.
The blossoming of online travel websites has played a factor for these independent tourists. Travel websites like Qunar, Ctrip and Kuxun makes it easier to bypass agencies and organise journeys online and independently. Additionally, the easier availability of tourist visas, once only obtainable by joining a travel group, has further paved the way for this shift to happen.
中国生态游－ Chinese eco-tourism
The original definition of eco-tourism is “responsible travel to natural areas that conserves the environment and improves the well-being of local people” but the term has acquired broader connotations in China, including tourism directed to undiscovered natural areas.
Given the fact that China is the world’s largest emitter of CO2 gases and 70% of China’s rivers and lakes are contaminated, Chinese tourists are increasingly developing an interest in eco-tourism, both domestically – in the few unspoiled reserves left – and abroad.
As displayed by a survey conducted by the popular travel platform Agoda, 79% of surveyed Chinese consumers are willing to pay a premium of $5-10 a night more, to stay in a hotel which engages in environmentally responsible practices. The top four characteristics that Chinese travellers value in order to assess the degree of green responsibility of a hotel are: 1) The use of environmentally friendly cleaning products (37.3%); 2) Recycling (36.8%); 3) Environmentally conscious construction and design (36.1%); and 4.Waste reduction (35.7%).
The most popular destinations for eco-tourism are New Zealand, Northern European countries and various countries in Africa (identified by the more adventurous of Chinese travellers). In Africa, eco-lodges have popped up in Tanzania, Kenya and Namibia along with organised eco-safaris to go along with the stay, all targeting Chinese travellers because of their current inclination towards this kind of leisure activity. The typical Chinese client’s age ranges from 30 to 65 years old, with a 40/60% split between male and female. Roughly 60% of them are business professionals, and 40% of them are entrepreneurs.
Given the increased attractiveness of eco-tourism, many Chinese entrepreneurs have heavily invested in green resorts located in remote areas to attract visitors. Eco-tourism spots in Zhejiang province – easily reachable from Shanghai, and spots in Yunnan province are the top-visited at the moment. These resorts feature top-tree wooden villas (ranging from ¥4000-¥5000 ($625-$780 per night), which allow travellers to enjoy eco-luxury escapes from their polluted cities.
China Super Travellers
Chinese super travellers are high-net-worth individuals spending a large portion of their income on travelling every year. Conventionally, spending more than $30,000 per year on travelling earns them this status. Super travellers are mainly resident in 1st tier cities (55%), are 40 years old on average, with a median spending of $58,000 per year on travelling.
The distinctive characteristic of this group of high-end travellers is that they prefer to spend money on customized services (62%) and exotic destinations in order to show they are able to afford offthe well-beaten track and undiscovered locations.
An interesting trend that is happening is the desire to experience the frozen lands at top and bottom of the globe. In 2014, 32% of super travellers chose Artic or Antarctica, with the South Pole being more popular than the North. When interviewed about the “most memorable” travels, 28% of super travellers identify North and South Poles. This type of experience has been valued much more than the typical journey to the US (10% considered it memorable) or to Europe (only 8% considered it memorable).
太空游 － tai kong you – Space tourism
Being a country that is home to more than four million millionaires, China is also full of crazy 富二代, second generation millionaires who would spend astonishing sums in order to be perceived as rich, powerful and exotic. This is another reason why the most bizarre and expensive trends are often registered in China first.
Space travel is a niche market, with commercialisation envisioned by Richard Branson, who decided to pour money into a venture called Virgin Galactic in 2004. Ten years later, The New York Times has described China as the world’s largest market for the incipient space tourism industry.
A survey conducted in 2014 by Hurun, highlighted that around 7% hope to engage in space travel within the next three years. This is a high percentage, given the currently low awareness of this niche market. In December 2014, XCOR Aerospace and Virgin Galactic, both owned by Branson, started pre-selling tickets for the upcoming initial thermosphere journey which will take place in 2016. Sheng Tianxing, a successful tea trader from Zhejiang, paid $100,000 or about a third of his annual income with a single click online for a seat on a rocket that will carry him into space. The long journey will eventually cost him three times as much. Tianxing, who has an extremely appropriate name literally meaning “sky walker”, said that his passion for space began when he watched Neil Armstrong land on the moon. Today many Chinese share this passion, helped by China’s heavy investment in its space programme, contributing to the curiosity and national pride.
Regarding the journey, the shuttle will bring passengers to the lower edge of space thermosphere (110km high). During the flight, passengers will be able to appreciate the space protean beauty, more than 1,000 kilometers of earth’s arc, space sunrise and sunset, and be able to experience a short weightless float. Above all, tourists can see moon craters clearly and the landing point of “Apollo 13”.
Even as the experience is designed for ‘ordinary people’, participants are required to take part in a specialised training that, only if passed, will make them eligible for the trip.
《星星》游 – xing xing you – “Star”-themed tour
Since the end of 2013 China has officially become the largest online video streaming market, with over 433 million viewers in 2014. Thanks to popular online streaming platforms such as iQiYi and Youku, American, British and Korean TV shows have become extremely popular, with the main stars gaining a lot of recognition from the Chinese public.
“Star-themed tours” are a specific type of travel tour particularly popular among young and rich Chinese fans. These tours typically involve visiting the sets of movies or TV series and often include meeting celebrities.
The first mover offering these type of tour trips were places featuring the madly popular South Korean soap opera来自星星的你（My Love from the Star). These tours banked on the craze of fans who religiously followed the hit TV series.
The National People’s Congress (NPC) gets together as a full committee twice a year for its plenary session. These meetings are called 两会 (Lianghui) and are the most watched political events in China. During the meetings, China’s premier leads the discussion of the main economic, social and political topics of the year, sets important targets and releases an annual report containing the main statistics, figures and economic indicators regarding growth and development. If you did not have the chance to follow this year’s March Lianghui, the following list of buzzwords is a great opportunity to catch up!
Made In China 2025 – 中国制造2025
Being one of the central issues covered during the Lianghui, “Made in China 2025” (MC25) is a comprehensive campaign that aims at upgrading the Chinese manufacturing industry. Even though the first drafts of this project were presented in 2013, the subject is still really fluid. The central focus of Lianghui 2015 was using technology for manufacturing to increase productivity and automation.
During the last couple of decades, China has based its fortune on cheap labor and low cost manufacturing. However, as the country has rapidly developed, macroeconomic conditions have put upward pressure on labour costs. The MC25 campaign is a way to address various issues altogether. First of all, the focus on innovation in manufacturing is a way to keep China competitive in this field, making the country able to maintain its cost advantage even with surging labor costs. Furthermore, MC25 is a response to the main drawback of the China low cost strategy, namely the huge impoverishment of the “Made in China” brand which is nowadays associated with poor quality and labor exploitation.
Increasing incentives, subsidies and investment in the field of manufacturing is also a way to climb up the global value chain thus concentrating on higher-value-added activities. China’s plan is to increase the percentage of Made-in-China materials and components of final goods to 40% in 2020 and 70% in 2025.
The role of the state will be crucial for the successful implementation of MC25, providing an overall framework, utilising financial and fiscal tools and supporting the creation of manufacturing innovation centers (15 by 2020 and 40 by 2025). However, the plan will also strongly rely on the market, strengthening intellectual property rights protection for small and medium-sized enterprises and making the use of intellectual property (IP) more effective in business strategy. This campaign will directly affect Chinese consumers. Given the low perception of the “Made in China” brand, Western companies have enjoyed over the past decade an “ex-ante competitive advantage”, meaning that, especially in some fields like luxury and automotive, Chinese brands were not taken into consideration by Chinese consumers.
MC25, by attempting to revamp Chinese manufacturing, will increase the level of competition in some fields, making marketing strategy more important for non-Chinese companies to maintain market share.
Maker Culture: 创客 chuangke
The maker culture is a contemporary urban subculture originated in the United States that represents an extension of the DIY (Do It Yourself) culture, with a particular focus on technology and engineering. The Lianghui has refered to this as 创客 chuangke (the maker), a term that features the Chinese character chuang, meaning “to generate” and emphasises a creative and passionate approach to making things. As part of a greater plan of rekindling the “Made in China Brand”, the Lianghui underlined the importance of fostering this kind of approach in order to move away from the common stereotype of Chinese people as “cheap copycats” and reach a status where products are not only made but created in China.
In order to incentivise a more creative and proactive way of life, the Chinese government has directed investment into two main areas. On the one hand, since 2013 the government has started financing “innovation-houses”, spaces in community centres set aside for teaching people to use post-digital tools. There are now more than 75 innovation-houses concentrated in the areas of Shanghai and Beijing. On the other hand, a more ambitious campaign involved the 2013 construction of a 16,000 square metre “makerspace” in China’s most famous engineering school, Tsinghua University in which students are allowed to make experiments with open hardware as part of their degree.
Since 2013, when the Chinese President Xi Jinping came to power, a massive anti-corruption campaign has been initiated with the aim of netting hundreds of corrupted government officials and company executives. The central concern of 2014 Lianghui was the “Operation Foxhunt” by which the NPC decided to start the negotiations for an extradition policy with the United States to punish rich Chinese suspected to have fled abroad to launder money earned illegally in China. This problem has been underlined also at this year’s meeting, with particular emphasis on “smash the tigers and the flies” concern (要坚持老虎苍蝇一起打) stressing the importance of eradicating corruption both from high level members and lower level ones. This campaign is reinvigorating Xi’s reputation as a strong but fair leader among Chinese electors even though international observers point out that the targets of the campaign might be political enemies and opponents.
Regarding the Chinese Market, the anti-corruption crackdown has had profound consequences on markets which were mostly attractive for high net worth individuals. The gambling market has suffered the most, with gaming’s share of revenue in Macau dropping 17.4% in January, extending the run of consecutive monthly falls to eight. Obviously the Chinese luxury market has been strongly affected, experiencing a slow down for the first time in 2014 (-1% growth), a loss of approximately RMB ￥115 billion. Tourism, exotic markets and real estate have all experienced a slow down given the higher prudence of Chinese consumers coming from the fear of becoming suspects.
The Lianghui received extra attention as 2015 is the last year of the 12th Five-Year Plan and the government meeting was a chance for the government to unveil the new 13th Five-Year Plan. Even though the actual 13th Five-Year Plan has not been released yet, the main concerns were obviously economic factors, employment and environment.
Regarding general Chinese economy, the GDP target has been set at around 7%. Furthermore, policies for the implementation of the new normal policy have been spelled out, including relaxation of the fixed exchange rate policy, the removal of some tariffs and the critical reduction of the industries in which foreign investment is restricted.
With respect to employment, the Lianghui has declared the will to create 10 million additional jobs in urban areas and to avoid an unemployment rate above 4.5%. With the same purpose, the budget allocated to military spending will be increased by 10%.
In conclusion, Lianghui’s considerations regarding environmental issues concentrated on cutting energy intensity by 3.1%, bringing coal consumption to a zero-growth equilibrium and replacing the “green charges” with actual “green taxes” and “green tariffs” in order to further incentivise energy saving habits.
Marketing strategies in China will be mainly affected by environmental considerations. These policies will push Chinese consumers to be more environmentally aware and perceive companies that are “more green” as more valuable. This is a great chance for companies to increase corporate social and environmental responsibility in their marketing schemes.
It’s indisputable that the incredible growth path experienced by China in the last 30 years is to be linked to low cost manufacturing, which has attracted foreign investment from all over the world. In order to maintain the country competitive notwithstanding the rising labor costs, China has incentivised investments in technology and infrastructure. The following buzzwords will help you familiarise with the new tech trends that will characterise China in the near future and that are already revolutionising consumer experience and marketing strategies.
Internet of things
The Internet of Things (IoT) is a network of physical objects or “things” such as vehicles, robots, home systems and appliances, traffic lights and so forth. They are embedded with electronics, software, sensors, and connectivity that enable them to exchange data with the manufacturer, operator and/or other devices (Machine to Machine – M2M) connected to the same network. The IoT involves a technological revolution, which will impact everything we do and will have deep consequences for marketers. More connected “things”, will enable the collection of more integrated information about customers’ behaviour and preferences. The huge amount of new data coming from these interconnected devices will give marketers the opportunity to deliver smarter and more relevant advertising, with dramatic improvements in CRM (Customer Relationship Management).
Growing by 20.4% annually, the IoT market is expected to reach a total value of US $4.6 trillion in 2018. In 2014, China had more than 50 million M2M connections — compared to the US’ 32 million and Japan’s 9.3 million according to the GSMA.
5G (5th Generation Wireless Technology)
The coming fifth-generation wireless broadband technology will replace the 4G technology by 2020 for business and consumer use. 5G connection will be 40 times faster than 4G (up to 1 Gb/s) and include a double-layer infrastructure in order to give a preferential space for data flowing “M2M” (“Machine to Machine”) rather than human to human . This will further pave the way for the development of the Internet of Things by increasing the productivity and interconnection among different “things”. Thanks to faster download speeds, it will be possible to stream HD videos with no buffering or waiting time. This will accommodate the need of Chinese consumers to enjoy TV shows and branded videos from everywhere without necessarily download the videos from a WiFi spot. Higher speed and connectivity with machines will have positive spillovers towards many industries, as well as foster the introduction of new types of marketing strategies, while enhancing others such as gamification and interactive digital communications.
China and South Korea are taking the lead in 5G investments with Chinese telecommunication giant Huawei spending RMB 3.72 billion (US $600 million) in 5G-related R&D.
Augmented Reality Technology (AR) consists in integrating High Definition images, videos and views coming from the real world with digital content. By superimposing real with digital content, AR technology completely changes user experience allowing a more immersive interaction between user, environment and software. In the field of retail, AR has been used to make customer experience more interactive and informative. AR can be used to enhance product previews by allowing a customer to view what is inside a product’s packaging without opening it. AR is also useful aid consumers in selecting products from a catalogue or through a kiosk. Scanned images of products can activate views of additional content such as customisation options. Retailers such as American Apparel with their Colour-Changing App or online supermarket Yihaodian use the technology to improve their customer’s shopping experience. In particular, Yihaodian has opened more than 1,000 augmented reality stores in Shanghai in 2014.
Although AR is closely linked to the digital world, it is one of the tools brick & mortar retailers are using to improve the overall physical shopping experience in China – particularly when they are up against increasingly attractive online shopping alternatives.
Overall, this market is expected to be worth $1.06 billion in 2018 growing at CAGR (compounded annual growth rate) of 15.18%.
China’s healthcare system is under pressure – The formerly rudimentary system has undergone extensive Government-led reforms to keep pace with China’s rapid economic development and rising expectations and now services 98% of the population. Public demand for high quality medical treatment have never been higher.
However, China’s healthcare system continues to face significant challenges. Inefficiencies in health care management, high patient-doctor mistrust, and vast regional discrepancies in quality and supply of health care are all forcing change. With a rapidly ageing population these pressures will only increase – by 2050 almost one third of China’s population, or 438 million is estimated to be over 60. These factors, combined with China’s strong ecommerce sector, rapidly expanding number of mobile users, and increased innovation and investment in healthcare, make the Middle Kingdom a fertile ground for the expansion of eHealth. Examples of interesting innovations include; Guahao – the largest online healthcare appointment platform in China – its value lies in streamlining accessibility to healthcare, and cutting down on administration and bureaucracy. Another interesting innovation is Alibaba Future Hospital – an ambitious platform designed to facilitate eHealthcare by allowing patients to make online appointments, pay for treatments and medicines, check lab results and settle medical insurance bills online. Lastly, Xingshulin is a great example of an eHealth platform which empowers patients to access health records and enables physicians to easily access information and medical resources on the go.