Apparel and Food Lead Online/Mobile Purchases

Online Shopping

The breadth of product categories with significant sales through online and mobile channels is striking.  The most surprising number in this graph is the combined fresh food and packaged food categories, which together hit 58%.  As striking is the low number for games – that is until one considers the cloud.  Games are played online or via mobile phone. They are not purchased in the traditional sense.

This list of online/mobile purchases makes our recent blogs discussing infrastructure needs and the companies like Alibaba that are shoring up their ability to deliver products to consumers, even more relevant.

Though these data reflect a survey of online users, based on data the China Internet Network Information Center, 85.8 percent of China’s Internet users in 2014 accessed the Internet using mobile devices.  That percentage surely has increased in 2015, meaning that a majority of online sales are also mobile sales.  Source: Frontier Strategy Group

Channel and Product Differentiation is Key

Frontier Strategy Group logo

An article by Danyi Yang of the Frontier Strategy Group reports on two often repeated concerns the advisory organization hears from executives new to marketing in China.  The first revolves around a concern that a good multi-channel marketing plan will cannibalize bricks and mortar sales while the second is that it is hard to get the most sales impact from technology.  The suggested approaches apply to marketing regardless of location.

  1. Evaluate key market segments: Utilize a balanced, strategic mix of multiple online and offline channels and offer unique products online to target different consumers.  This divide to conquer approach is a common strategy for brands that, for example, differentiate their offerings in their regular stores verses their outlet stores.  They sell different products in each channel.  Here the emphasis differentiates online, mobile online and offline product assortments as well as media delivery channels in order to reduce cannibalization.
  1. Capitalize on social media influence: Leverage online marketing platforms and align with China’s e-commerce calendar.  An example is Singles Day in early November, which is China’s Black Friday.  Other holidays throughout the year open marketing opportunities to the wise brand manager.

Source: Frontier Strategy Group

Mobile Marketing Lifts Personal Brands

Tmall Marketing

Today 15% of the sales of beauty and personal care products in China occur online, up six fold in the last 5 years and three times the penetration seen in other sectors.  But mobile is where the real action is.  Half of all online purchases for these products are projected to be made via mobile this year and that’s up one third from 2014.

The Tmall marketing machine has created several mechanisms for marketers to use and personal care brands have taken to them.  Personal care brand leaders are:

Top 10 Personal Care

Alibaba Bolsters a Burning Platform for its own Benefit

SingPost

Last week this blog quoted surprising data revealing that more than half of the active shoppers in China live in lower tier cities.  An issue for these areas is weak logistical structure for delivering products.  Alibaba steps in by adding to its stake in Singapore’s national postal and logistics company, SingPost.  Its investment of US $138 million increases its position to 14.5%.

In addition, Alibaba gets even closer to SingPost with an investment in its wholly owned subsidiary Quantium Solutions International, which provides end-to-end ecommerce logistics and fulfillment.  That investment cost the company another US $67.5 million for a 34% stake.  But it gives Alibaba operational influence over a company that delivers goods to its customers.  A little vertical integration never hurt anyone.

Lim Ho Kee, chairman of SingPost said, “As a postal service provider, we are on a burning platform, facing a global decline in mail revenue…It is a win-win situation for both of us because we share similar goals and have a natural fit between our operations.” Source: TechInAsia

So Much for a Slowing Smartphone Market

Carrier Data - June 2015

While overall subscriber growth remains stable – a mere 622,000 new subscribers – the growth of new 3G / 4G subscriptions has rebounded to a healthy 18 million and change.  Such is the story of a replacement market where smartphone subscriptions replace feature phone subscriptions while the overall subscriber base doesn’t change significantly.  The overall growth increase can be explained by the number of kids who get their first phone.

Meanwhile, the plunge down to 7 million new subscriptions that we saw in April was apparently not a trend.  May grew by 13 million followed by June’s 18 million.  All is right in the smartphone growth market. Look for China’s smartphone subscriptions to cross the 700,000,000 mark with the July data. Sources:  China Mobile, China Telecom, China Unicom

Known Unknows, Unknown Unknows

Gene Hsu

In his response to a pretty superficial article which applied Donald Rumsfeld’s “Known Unknows, Unknown Unknows” to China, Gene Hsu, a management consultant, had a knowing comment. He described his youth growing up playing baseball.  Then his years in college when he took up golf and tried to put his baseball swing on a golf ball.  It didn’t work because the power he used to hit a baseball works against you when hitting a golf ball.  He points out that hitting a golf ball is “related more to swing motion, attack angle, point of contact on the club face, etc. [than it is to power].”

His analogy makes the point that when dealing in China restraint while adjusting to the way the game is played there, is best.  Hsu states with authority, “To be successful in China, foreigners should be prepared to retrain their attitudes, mindsets, and approaches. The obstacles and roadblocks in China all originate in the misperceptions we develop based on our personal cultural biases. China is a completely different paradigm than the West, and success truly requires a different mindset.”  Source: LinkedIn Pulse

Striking Contrasts

Comparing High and Lower Speed Comsumers

The contrast between high speed and low speed consumers in China is striking.  Both groups are considered to be middle-class, but those who expect their income to increase by more than 5% annually have a different world view than those with lower income expectations.  These data put the differences in relief.  The high-speed consumers shop and spend online at more than twice the rate than those with lower expectations.  Interestingly, both spending classes want more stuff.  Go team.  Source: Boston Consulting Group

Over Look Lower Tier China at Your Peril

High Speed

Consistent with yesterday’s blog in which we cited a study projecting significant growth for the Chinese middle class, today we see work by Boston Consulting Group that projects better than 75% growth in what they call high-speed households.  They are the spenders, the high-end of the middle class.  The most significant insight is that the majority of these folks live in lower-tier cities and that that majority will increase over the next five years.

That is important for those of us who are selling products to the Chinese consuming class.  We often assume that speed spenders are in the top tier cities.  That is not entirely true.  And people in lower tier cities have all the pent-up demand, but limited infrastructure; fewer local stores and less access to the world.  To put this in perspective, in order to reach 80% of the high-speed households a company needs to cover 530 cities in today’s world. In a 2020 world the company will have to cover 615 cities. This expansion plays into the mobile commerce sweet spot – bringing the world into people’s local lives.  Source: Boston Consulting Group

Chinese Growth to Continue

Projected Middle Class

Economists Li-Gang Liu and Louis Lam from ANZ Research project eye-popping growth for the Chinese middle class over the next 15 years.  It is striking because we have been talking about Chinese middle class growth for so long, it is hard to believe there is more growth to be had.  According to these guys thee is plenty.

The significance of their findings is seen in projected consumption rates.  The Chinese government has been adjusting policy for the last couple years to increase the share of consumption as an element in the economy.  These numbers suggest they are on the right track and that those selling goods and services to this population will benefit for years to come.

Liu and Lam see the broadly defined middle class in 2030 reaching 93% of the urban population. The result is that, “[Consumption] in discretionary goods and services will see fast growth while sectors like automobiles, telecommunications, real estate, education, recreation and medicines and medical services will likely witness exponential growth“.

It looks like the Chinese dream for advertisers is just getting started.  Source: Business Insider, Australia

Contrasting Perceptions

Pew Perceptions

According to Pew Research Center’s most recent survey, perceptions of the US as the world’s leading economic power grew by 6% while the view of China as the world’s leader has fallen by 2%.  This survey was done prior to the China’s stock market correction that began in June leading one to believe the view has tickled further downward by mid-July.  Even the Chinese dropped their perception of China’s economic leadership from 55% in 2014 to 44% in 2015.  They must have seen the coming correction.

Notably, when asked whether China will or already has passed the US as the leading economic power, 67% of the Chinese firmly believe in their superiority, if not now, in the near future.  And they overwhelmingly believe they will surpass the US – only 16% think it will never happen.  Source: Valuewalk.com; Pew Research Center