Over the years the Chinese market has experienced and accelerated growth and its middle class had greatly increased its purchasing power. With the biggest consumer market in the world wanting to buy premium imported products, the government is increasingly encouraging imports. But are foreign companies prepared to sell and succeed in China?
After 2 years helping companies find companies in China, I have heard from Chinese importers that most foreign brands fail to arrive prepared to sell in China. Mostly because they don’t even have clear some of the most basic and at the same time most important things:
Pricing strategy
Identified target audience
A story behind the product
This year we witnessed a company like Carrefour selling most of its shares in the Chinese market. Meanwhile in this same year Costco had to control its excessive customers in its stores during its opening in Shanghai. What is it that defines the failure or success of a strategy in China?
How did Costco succeed in China?
The most important step to understand how to sell in China is to dive deeply and understand the complexity of the market and its consumers, and constantly move at its rapid pace. The agency behind Costco’s success in China explained that the 4 keys to succeed in China.
Knowing who the target audience is. In China, a country of really big dimensions, it is crucial to acknowledge that regions, age groups, interests, values and tastes change significantly even within the same city.
Message: Creating a message that will be appealing for this target audience so that it will engage them. Once figuring out the message it will be all about generating appealing and sustainable content. This is crucial for the strategy to succeed in China.
Channels: Finding the right channel to communicate with the target audience. Especially in China where there are very specific social media for almost any consumer group, and they can even vary from region to region.
Product: Finding the right product mix and understanding if the product will need any kind of adaptation. One given product can have a very different use in China. For example, in the west people use jams as a fruit spread for bread, but in China they use it to add flavor to tea. So even the flavor that could be appealing for them could change. Understanding how the audience will consume the product will be the core of the strategy.
Costo understood all this very well, and they were able to communicate in the right channels, about the right products, with the right message, to the selected target audience. This explains partly the success of their recent opening of store in Shanghai. And this is something that companies should invest time on before jumping into the market without being prepared. This will greatly define if a company can succeed in China.
I have heard a lot about cultural differences between the east and the west, but are Chinese people too different from us? I want to discuss some similarities I have found between Chinese and Latin Americans.
As a Mexican living in China for 2 years, I have being involved in personal and business situations with Chinese people. After this time I have come to the conclusion that it is not so difficult to understand them, and I can even relate to some of their ideas and traditions.
The more familiar I’ve become with their culture, the more I’ve benefited from the great advantages of doing business with such an unknown market to many companies.
Similarities between Chinese and Latin American cultures
When we think of China in Latin America, it might seem like a country that is just too far away in both culture and distance. And it is true that we have a lot differences, but in fact I have found 3 things that Chinese and Latin Americans have in common.
1. Personal relationships:
One of the main similarities I’ve found is the role of trust and personal relationships as a key element when doing business in China.
Just like in Latin America, Chinese like to get to know the person they are going to do business with, having dinner with them, sometimes even introducing them with their family. It is a way to create a deeper bond of trust without which it is difficult to move forward when doing business.
2. Hospitality:
Despite the idea that a lot of people may have about the Chinese people, they are very friendly, and hospitable people with foreigners. This might not be easy to grasp when walking in the street as a tourist. But when sitting on a business dinner, or making Chinese friends it is surprising to see their warmth and kindness.
They are interested in knowing and hearing about life in other countries, their traditions, values, and family dynamics, etc. Meeting them at a personal level facilitates communication, business and loyalty.
3. Family values:
These are extremely important for them. Family is the most important circle in Chinese people’s lives, and they are very committed to “family rules” such as getting married and having children at a young age. This is also true in Latin America, although in both places it is slowly changing among younger generations.
Latin American families tend to be bigger than Chinese ones, since Chinese people were limited in having children due to the one child policy. But regardless of the size of families, the closeness with parents and grandparents is very strong in both cultures throughout their lives.
I can also perceive the importance of family since almost in every business meeting I have gone to, I get asked a lot about my family, and about my marriage plans. Even if its the first time I have met them!
Knowing that Chinese and Latin Americans have very similar values in terms of family, friends, relationships and trust helps us relate more to them. And it will make us see in them much more than a group of people different from us. We open a world of possibilities to do business, and along with it, make new interesting friends.
We all know that since 2010, China became the largest economy in the world. But what does this really mean for companies around the world? An opportunity to sell products from around the world in the Chinese market.
I am from Mexico and I came to live in China 2 years ago. While being here, I have seen how businesses from Latin America are falling behind when it comes to China. For example, nowadays around 80% of Mexican exports go to the USA, and only 2% of Mexican exports go to China.
What would happen if those companies that make up 80% of Mexican exports turned their attention to the Chinese market?
How big is China compared to the USA?
While traditionally exporting to the USA has brought enormous opportunities for companies, China is a huge market that is currently being unexplored by a lot of companies. China has the world’s largest middle class, that is estimated to reach 630 million by 2022.
This is almost twice the current US population, and 3 times the US middle class. And because its huge consumer market is one of the main drivers of growth of the economy, China is ready to purchase foreign premium products on a massive scale.
It is true China might be unknown and complex market, but the key to getting China right is understanding the market and understanding the consumers first, to adapt the products and strategies to the market.
Even large companies have made mistakes when trying to do in China what works in the West, which is not always the best idea. But when they do adapt, the benefits can be substantial.
What did Starbucks do to succeed?
For example, what has made Starbucks succeed in a market that has traditionally drunk tea for thousands of years and had was not used to drinking coffee?
Most importantly, it did not arrive to China trying to impose a coffee drinking culture. It first embraced the tea drinking culture introducing beverages with flavors familiar to the market, in a very chic and comfortable place that made the experience of going to Starbucks and meeting friends exceptional.
Chinese people started to associate Starbucks with a symbol of Western coffee culture, and with it a representation of modern lifestyle. Today, Starbucks has more than 3,600 stores in China, and in 2017 it opened its biggest store in the world in Shanghai.
Chinese market, Starbucks
Just as it was possible for Starbucks, entering Chinese market is possible for foreign companies who are willing to commit and adapt to it. The benefits will be greater to those who decide to tap on it sooner since now companies from all over the world want to go to China, and competition among local and foreign players will be increasingly fierce.
It’s time to think outside the box and include China into your plans of global expansion, before it is too late.
Read more about e-commerce in China in my previous article:
How is Chinese e-commerce different from Western countries?
In China there are 800 million internet users, which is more than the total population of Europe, and more than the total internet users of the US and Europe COMBINED!
98% of them use a smartphone. That is more than double of the total USA population.
Mobile payments are very widespread. According to e-marketer, in China 81% of smartphones use mobile payments compared to 27% in the United States, and even less in many European countries.
When it comes to digital transformation in China, e-commerce is simply remarkable. Ten years ago, China’s e-commerce accounted for 1% of the world’s e-commerce, and in just one decade it went up to 42%. It has experienced annual growth rates of 296% in 2010 for instance.
In just a few years, Chinese e-commerce became the world’s biggest e-commerce market.
Jack Ma, the founder of Alibaba, said: “In the US, e-commerce is the dessert but in China it is the main course”.
But what makes e-commerce in China different from the west? Here are 7 key facts I have discovered while living in China for one year and a half:
1. Shopping experience
There’s no better example than the Singles Day vs. Black Friday shopping festivals.
Singles day 11-11 is a shopping festival that started in 2009 by Alibaba. The idea supposedly emerged from 4 college students who were single, and wanted to celebrate a day for single people, so it was 11/11 the chosen day to treat yourself.
Nowadays, singles day is the biggest shopping festival in the world . It’s just a few weeks before Black Friday in the USA, which is famous for the chaotic sales at stores. We have seen for years pictures of how people camp outside of stores to be the first to enter and get the best offers. After store doors open, people run in and they fight against each other to get discounted TV screens and all sorts of items:
Meanwhile, in China’s singles day, prices can be “reserved” weeks before singles day by paying a security deposit. People can buy the items they reserved sitting on their couches while watching the singles day gala, which is a show broadcasted nationwide.
Most people watch the gala because it is all about entertainment, viewers can have fun shopping while watching foreign artists like Katy Perry, Mariah Carey or Nicole Kidman, Cirque du Soleil performances, or watching Jack Ma perform as Michael Jackson:
Viewers can interact with the show through their phones, where they can play augmented reality games, get coupons, vote in polls, and watch in real time the sales across Alibaba’s platforms:
As all numbers in China are huge, Singles Day sales in the first 20 minutes were more than the total sales of Black Friday.
The graph below provided by Business Insider shows the total amount of sales in the Chinese and American shopping festivals.
Alibaba surely understands the importance of shopping experience. This is how high Chinese people’s expectations are.
2. Data collection makes shopping experience highly customizable
In China, privacy concerns are way lower than in Western countries. This allows to collect more data about consumer behavior.
For instance, Alibaba uses machine learning to recognize patterns in shopping behavior. The more you shop, and the more you search, the more accurate the suggestions become, and the overall experience becomes highly tailor-made. As Alizzila puts it: “product search results that have become uncannily accurate“.
You suddenly find suggestions of things you didn’t know you needed. It feels as if they are reading your mind. Not even the mind, but the subconscious mind because they know better than yourself what are the things you need, our will need.
Amazon suggestions are normally of similar items or things that other customers have bought, but the options are quite limited compared to the endless scroll down list of suggestions in Alibaba’s Taobao.
The comparison of product suggestions is shown below:
Amazon:
What other items do customers buy after viewing this item?
Taobao:
This is what I see when I open Taobao after a few searches I made for room decorations. And I can scroll down for a long time and still discover items that match my taste and my needs, but I was not necessarily browsing them.
3. People love buying through messaging apps and groups
Setting up stores can be really expensive for brands, so a lot of them choose to open online stores within Wechat, the most popular Chinese messaging up.
I bet this sounds a bit strange, buying things through the Chinese equivalent of whatsapp? But as a matter of fact, Wechat is a one-stop app for many functions such as paying bills, playing games, sharing life with friends, ordering food, transferring money to friends, booking flights and trains, among many other functions, like e-commerce.
Wechat has 1 billion monthly active users! The majority of which use the app to pay virtually anything, everywhere, all day long.
Additionally, there are new e-commerce platforms emerging. For example, Xiaohongshu , which started a social media platform similar to Instagram and Pinterest, has recently integrated an e-commerce marketplace and is rapidly getting an important piece of cake in Chinese e-commerce. Pinduoduo , which is a group purchase platform, is another example of a rapidly growing e-commerce platform.
4. Customer service
Although overall customer service it is not great in China, it is a different story in ecommerce platforms. Chinese consumers are looking for personalized shopping experiences, which is why customer service is so important.
In China customer service is almost a shopping assistant service. People ask many questions before making an online purchase. So customer service is required in China as it is part of the sales process, whereas in the west we only call customer service if we have a problem.
Another advantage of the pre-sales customer service is that people can ask for discounts and I have seen that they are easily granted in platforms like Taobao for example. I had seen Chinese people like to bargain when shopping in markets, but I was surprised to find that in China you can even e-bargain!
Customer service in online Chinese platforms is sometimes even funny. I once got an “I love you” message from a store’s customer service in Taobao:
In fact, customer service tailored to Chinese people is one of the reasons that made Taobao, what was the time of a small platform created by Alibaba, defeat its big and international counterpart Ebay in the Chinese market.
Alibaba understood better the needs of Chinese sellers, so it removed the multiple fees for vendors that Ebay was charging and had vendor support chat to encourage and help sellers to perform better. Taobao also made it easy for buyers and sellers interact with each other.
It was such a success for Alibaba that just after a few years, Ebay closed its offices in China.This proves how essential personalized customer service is in the Chinese market.
Alibaba knows this well and it is now using Artificial Intelligence to create chatbots that help sellers deal with the heavy load of messages. According to Alizila, it is able to handle up to 95% of customer service inquiries service inquiries, and with machine learning, it tries to mimic human interaction.
In contrast, what I have experienced in other countries is that sometimes it’s nearly impossible to find customer service numbers and all you are left with is the endless FAQ list. And when you do find the number, you have to “wait in line for the next available representative”, hoping that this time your problem will actually be solved.
5. Product information
The incredible amount of information and content you find about each product on Chinese platforms, really leaves you without questions. Typically, most products have at least one video, several pictures, 3 – 5 key selling points, number of items sold, very detailed information about origin, materials, authenticity certificates, suggested uses, history of the brand, among others.
Taobao:
Amazon:
6. Delivery costs are VERY cheap:
The Chinese government has heavily invested in all sorts of infrastructure projects across the country and this, combined with cheap labor cost, have made the distribution costs of parcels very cheap. On average, the delivery cost in China is less than $2 USD per parcel, compared to $5 to $10 USD in the USA.
Moreover, the last mile delivery is less challenging in China than in other developed countries thanks to thousands of delivery guys across the country who the move the daily 76,000 parcels in their far from fancy electric motorbikes.
Just in 2018 the number of parcels delivered in China was more than 50 billion.
The last mile delivery in images:
Chinese “Kuaidi” The American “UPS guy”
7. Digital payment system:
Differently from many Western countries, most Chinese people went straight from cash to mobile payment (skipping the widespread use of credit card payments).
The two main payments systems are Alipay and Wechat pay, and they are used for all sorts of transactions. Paying with your phone is as simple as scanning a QR code and authorizing with your fingerprint. This of course makes e-commerce transactions very efficient, and the paying process is seaming-less.
In China cashiers don’t ask “cash or card?”, they ask “Wechat or Alipay?”. They would probably give you a weird look if you take out your wallet, but if you take out your card they would completely freak out.
There has even been some evidence of beggars accepting mobile payments with a QR code hanging from the neck.
In the near future, it will be possible to pay basically just with your face. Facial recognition payments are happening now in China, although they are not as widespread as QR codes yet.
To conclude:
I wanted to illustrate how China is now a trend-setter in e-commerce, and it is a huge market full of opportunities for foreign brands. However, it is imperative for brands to localize their strategies, to understand the local culture, and to be prepared to educate Chinese consumers about Western products, since they are not familiar with many brands or products that for us are simply normal.
When coming to China we have to stop doing things as we do in other countries, we have to think out of the box and most importantly, stop assuming that China will adopt a Western culture or follow Western rules. Although they like to follow Western trends, as a matter of fact it is us as foreigners who need to understand how Chinese people perceive and interpret our product, our concept or our ideas, and how it meets their tastes, lifestyle, beliefs, etc. in order to adapt in a respectful and creative way.
Many of us have the wrong idea about China before coming. But when you start discovering China you realize that nowadays it is much more than a manufacturing country. It is a very dynamic place where innovation happens at a very high pace. And e-commerce is just one example of what we live every day in Digital China.
