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.