However, it is not just the pace of adoption which causes amazement—it is the strength of the embrace and the whole-hearted enthusiasm and pervasiveness of the different ways in which the Chinese have taken to the internet, which inspires awe. The internet, and especially the mobile internet, has entirely transformed all key aspects of the consumers’ lives—entertainment, information, shopping, and social interaction. The social character of the web creates a unique environment, as well as unique consumer state of mind. For brands to get their messages across in this environment is a challenging task and definitely, a very different task than what they have faced so far—and definitely showing TV advertising on the digital platforms is not a good way to do it. The impact is even larger in the retail space. According to China’s National Bureau of Statistics, online retail transactions in the country are larger than the combined online sales of USA and Europe.
The Teeming Netizens
In 2008 the China Internet Network Information Center (CNNIC) gleefully reported that the number of internet users in China, estimated by them at 253 million, has surpassed the number in the USA (Barboza 2008). At that time, the news was greeted with a fair amount of exclamation and wonder. Just the next year the same organization reported that the number of internet users in China now was greater than the entire population of USA. The feeling of awe, almost disbelief, grew further. In 2016 CNNIC reported that now the number of Chinese internet users, counted as 710 million, was twice the number of the entire population of USA (CNNIC—China Internet Network Information Center 2016). Clearly, the pace of adoption of the internet by the Chinese has been astonishing and now more than half the population of the country has access to the internet, though the penetration in large cities such as Shanghai and Beijing, as well as prosperous provinces such as Zhejiang and Guangdong, is over 60%.
However, it is not just the pace of adoption which causes amazement—it is the strength of the embrace and the whole-hearted enthusiasm and pervasiveness of the different ways in which the Chinese have taken to the internet, which inspires awe.
The landline and broadband infrastructure development lagged behind the development of mobile internet infrastructure
Low penetration of computers meant that even those with a telephone landline were not in a position to access the internet
With over 200 million migrant workers, living in dormitories and temporary accommodation, computer access of the internet was impractical, but mobile access was handy
China innovated to produce smartphones at a fraction of a price of an iPhone or an Android phone from a global brand, which made it affordable for nearly all
The main draw of the internet, which was and remains social networking, transitioned very easily and well to the mobile due to strong efforts made by the application providers such as Tencent (provider of QQ and WeChat) and Sina (provider of SinaWeibo, a Twitter-like service).
The state-owned mobile service providers offered mobile internet at an affordable price, and in fact enabled the users to even save money, as they moved mobile messaging and even calls to the internet
As a confluence of these factors, China has become essentially a mobile internet nation (a path that another giant market, India, is also embracing, with the help of Chinese smartphones!). Data suggests that among the internet users, two-third of the time spent on the internet is on the mobile phone. While it was mostly the social networking which happened on the mobile, clever innovations from the Chinese internet companies, including clever mobile-based payment options, have also resulted in e-commerce morphing into mobile-based e-commerce (mCommerce).
Reaching the Consumer on the Internet
With the increasing reach of the internet, the amount of time that the consumers are spending on the digital media has overtaken the amount of time that the consumers spend on traditional media in urban China. There are several reasons for this and one of the more important reasons is that the television content is now all available on the internet (in a paid and unpaid, legitimate or pirated manner).
A few years ago, when the internet audience numbers became interesting, most companies were hurriedly trying to put together a digital strategy to connect online with the consumers. Most of these companies were acting too slowly and their strategies were short-lived in their effectiveness. With 710 million internet users, the need of the hour is not to develop a digital strategy, but to comprehensively overhaul the strategy with digital at the core of it. According to a research conducted by eMarketer, a research firm, in 2015 for the first time, the amount of time a Chinese consumer spent on digital channels outstripped the time that was spent glued to the television. The average Chinese, according to their data, spends six hours and six minutes consuming media in various forms, and out of this three hours and five minutes is devoted to the partaking of social media and digital content (eMarketer 2016).
GroupM, a part of the WPP group, estimates that online advertising expenditure was 277 billion yuan in 2016, an increase of 30% over the previous year. In 2007 digital media spend was expected to account for 57.2% of the media spend—a significant increase from the 38% share of the pie that digital secured in 2015 and almost the same as the proportion of time that consumers spend on digital (GroupM 2017). Correspondingly the share of television was forecasted to decline from 41% in 2015 to 31.4% in 2017. This growth trajectory is likely to be maintained in the coming years and the online ad spend is expected to nearly double in 2019 to 543 million yuan from the 2016 figure. This comes at the cost of traditional media advertising, which declined by 2% in 2016 (after seeing a growth of 1% in each of the preceding years).
According to the latest CNNIC report, over 200 million of the 710 million Chinese Internet users lived in rural areas (28.4% of the internet users as against 45% of the total population). However, while the urban growth in the number of Internet users is now sluggish, the rural netizens are growing at an impressive 9.5% in 2015—twice as fast as the urban growth (CNNIC—China Internet Network Information Center 2016).
However reports shows that China ranks relatively low in terms of average internet speed and peak connection speed. This is particularly so in the rural areas. In fact, the goal of inclusion of the rural population into the group of fast internet access through better broadband and mobile access is one of the stated objectives of the Chinese government and an avenue of further growth in China.
The pace at which the online media scene continues to change in China is really amazing. 2016 seemed to have been the year of live streaming. According to a report from the CNNIC released in August 2016, 325 million Chinese (46% of the 710 million internet users) watch live streaming (CNNIC—China Internet Network Information Center 2016). The report mentioned that a total of 106 live streaming apps secured a funding of 2.37 billion yuan ($350 million) in 2015. A new live streaming platform was established every three days in 2016. According to some experts, this represents a trend toward “fragmented entertainment” where the audience can choose a streaming star or content which matches their individual preferences much better than any of the mass broadcasts. In addition, it allows you to socially engage with the performer, send her rewards and pay her and feel a degree of social interaction, which is ruled out in a mass television broadcast.
Fragmented Life: Unified Experiences
What is peculiar in China is not just the content that the consumers are partaking, but the whole manner in which this consumption takes place. This has significant implications on the way marketers can reach their messages to the digital consumers.
The internet and especially the mobile internet has entirely transformed all key aspects of the consumers’ lives. We briefly examine the impact in four key areas of life—entertainment, information, shopping, and social interaction.
Essentially the power of the mobile phone makes it possible to do whatever the consumer wants, whenever she wants it and wherever she wants it. This has removed the boundaries of time and place and consumers seamlessly flit from one activity to another at their whim.
Right Through the Day. Emergence of Micro-content
The Chinese consumers’ homes are likely to be adorned with a large LCD display (often more than one) but the consumption of the television content is more on the tiny screen of their mobile phone or a tablet. While the majority of the consumers partake the free content, China had 81 million paid online video service users in 2017 subscribing to online platforms such as iQiyi, Tencent video, and Youku. The largest of these, iQiyi itself has a monthly reach of nearly 250 million. The growth of 4G, low mobile data costs and the facility to download the content on phone and watch later have all contributed to this shift. The Metro lifestyle of long commutes also encourages mobile video watching during the journey.
Of course, the availability of content is a key contributor—not only the online platforms host all the major film and television programs, they also have their own content, which is competing with the traditional television fare. The video websites produced 112 drama series in 2016, and 22 of them could find a place in the top 120 dramas of the year (GroupM 2017).
Most importantly, the distinction between play time (entertainment) and work time has been blurred, as entertainment is always at hand. Play and work are often intermixed, with entertainment consumed in small bites squeezed in between work (or sometimes equally small bites of work). Entertainment has been transformed from a discrete activity done in focused leisure to a near-continuous indulgence stolen in small pieces throughout the day.
Naturally, the entertainment content has also transformed itself to suit the changing consumer habit. It is hardly possible to watch an entire film or even an entire episode of your favorite television drama, during a quick break, but it is definitely possible to partake the copious amount of micro-content which has penetrated the internet now.
Personalized News in Bite-Sized Chunks
The conversion from the discrete to the continuous is true for other activities also. The digitally connected do not wait for the newspaper to arrive every morning. Information continuously trickles to them through myriads of forums, websites, emails, newsletters, and sharing and updates from their friends and even strangers. As in many other parts of the world, the young Chinese often imbibe more news from social networking websites than the news channels themselves.
Here again, the shape of the content has been transformed to accommodate the changing habits of the consumers. One of the fastest growing news apps is JnriToutiao (今日头条), which serves algorithmically selected, personalized, bite-sized content to suit the individual preferences of the readers (Feng 2017).
Shopping on the Net
Grabbing Every Opportunity for a Deal
The Chinese never really adopted the Western consumers’ shopping habits and weekend trips to the hypermarkets and buying a carload of groceries. However, hypermarkets (including Walmart and Carrefour) established a significant presence in China and the Chinese—though for Chinese consumers basket sizes remained small and shopping trips were more frequent. E-commerce fitted the Chinese shopping habits to the tee. It is not surprising that the Chinese have become the most enthusiastic embracers of online shopping.
Additionally they can now buy as often as they want, and the basket size can be even one item.
Like entertainment and seeking information, shopping too now is a near-continuous activity and the consumers can enjoy the experience whenever and wherever they are online and with their mobile. In fact, shopping anywhere, anytime is becoming the norm, as technology places the world’s supermarkets in the hand of the Chinese consumers, with ordering and payment through the mobile phone. Though China is a distant second to the USA in terms of the size of its total consumer market, it is already the world’s largest e-commerce market. The value of online sales of physical goods increased by 28% to 5.481 trillion yuan, accounting for 15% of the total retail sales in China (Source: National Bureau of Statistics. Statistical Communique of the People’s Republic of China on the 2017 National Economic and Social Development 2018).
Along with shopping, a near revolution has taken place in the way the consumers pay for their purchases. Online payment tools like Alipay have proven to be so successful that they have practically taken over not just the online payments but also a huge share of offline payments. As behavioral economics tells us, payment by methods other than cash reduces the pain associated with parting with money and leads to more liberal spending (Ariely and Kriesler 2017). This phenomenon is clearly on display in China.
The young Chinese (particularly the post 1990s) grew up digital and display a closeness to the internet like no other generation. The absence of siblings, aunts, and uncles is all compensated by continuous interaction with a large number of friends and acquaintances on the internet. In fact, a common sight is a young couple having a meal together in a restaurant, each one absorbed in his or her own mobile phone, neglecting physical interaction for the sake of the virtual companionship.
As for the other activities, mobile internet has converted this discrete activity to a continuous interaction with friends, relatives, and even strangers. The phenomenal growth of the main tool for facilitating social interaction, WeChat, and the time consumers spend on it (about half the WeChat users spend more than two hours on it every day), bears clear testimony to it (emarketer.com 2017).
Unified Experiences: It Is All Social
It is well established that one of the key drivers of the growth of internet and mobile internet in China has been social media. Data suggests that instant messaging, search, news, social networking, and online video are the most popular uses of the internet in China (CNNIC—China Internet Network Information Center 2016). News and online video are also often channeled through social media, as sharing of news and video is one of the most common activities on social media. This will suggest that in fact nearly all internet use in China is social—and in fact internet and social media in China are nearly synonymous. One can surmise and perhaps explain the “social” nature of the Chinese internet by the fact that most Chinese under the age of 35 years are a single child, and absence of a sibling to socialize at home, inevitably drives them to the internet in search of companionship. Whatever may be the reasons, the net result is a 700 million large social internet-based community, which is sharing news, watching online videos, and commenting on it (referred to as danmu 弹幕—or bulleted comments which fly past on the screens when the viewer is watching the video) giving each other suggestions and recommendations on what to watch, what to buy and what is in vogue. It is as if a traditional, tightly knit social community has transformed itself into a mobile internet-based community where all the traditional dynamics of sharing and social interaction are having a play with the help of technology.
Hence while consumer life has been fragmented and the consumer flits from one activity to another, the experiences are getting more unified—under the umbrella of social, and actively and astutely led by WeChat. In fact, apps like WeChat have made sharing so easy, that all activities on the internet now have a social flavor. Shopping merges into social, as consumers click on the links shared by their friends, work merges into pleasure as colleagues connect on WeChat, and content which is shared straddles personal as well as pleasure.
The reason is that social media is highly addictive. Once the consumers experience the joys of “likes” and social connections, they find it difficult to switch off. Research indicates that social media activity, such as likes, tweets, and comments, activates the brains’ reward center in the same way as a hug, smile, or compliment. A study published in Psychological Science reports that people had a higher “self-control failure rate” with social media as compared to sports, spending, and even sex! Another study indicates that social media addiction shares features with substance and gambling addictions, and both activate the amygdala-striatal brain system which the drive for impulsive behavior.
In fact the addictive features of social media are so strong that consumers look for social media features in other digital (and even non-digital) media. Video watching now comes with screen bullets “danmu” 弹幕 (user comments which flash on the screen); even offline TV viewing of popular programs is accompanied by simultaneous comments and bantering on WeChat among friends. Shopping has become a social activity as consumers seek out friends and acquaintances for usage experience, recommendations, and sharing. In fact, the survival of the non-social digital (and non-digital) media critically hinges on them being able to tackle the challenge of successfully inducing social elements in their domain, so that they are not rejected by the consumers when they find that they cannot get that gratification of social interaction, to which they are hopelessly addicted. Marketers used to debate how they should allocate their resources to social media and other parts of digital media. But the Chinese digital world has been overrun by social media and it is difficult to draw a line between social and non-social. Chinese consumers have developed a strong bond with social media—basically WeChat on their phone. Social media almost acts like a drug—shooting up the oxytocin and endorphins levels and putting the consumers on a permanent hold.
This social character of the web along with the fragmentation creates a unique environment, as well as unique consumer state of mind. For brands to get their messages across in this environment is a challenging task and definitely, a very different task than what they have faced so far—and definitely showing TV advertising on the digital platforms is not a good way to do it.
In 2017, Forbes released its annual list of the 100 richest tech billionaires in the world. Nineteen of these 100 global tech wizards are from China, which proves that not only is tech thriving in China, it is also making money for the entrepreneurs who are leading the tech businesses. Of course, e-commerce is one of the main ingredients of this tech revolution and Jack Ma is ranked seventh in this pack of 100 (Vinton 2018).
The USA is witnessing a huge tussle between the might and reach of the traditional brick and mortar retailer Walmart and the muscle and aggressiveness of Amazon. While Walmart’s might is still able to withstand the onslaught of e-commerce, the less powerful traditional US retailers like Macy’s and Gap are suffering. Walmart itself is able to resist the onslaught by actually converting itself into an online retailer—with an added advantage of 5000 physical stores to enhance the customer experience. On the whole, e-commerce seems to be winning, whose share in the US market increased from 9.3% in 2014 to 10.4% in 2015 (Source: Economist, June 2016).
While the Chinese GDP grew by only 6.9% in 2017 (one of the slowest pace of growth in 25 years), the value of online sales of goods and services in this period reached 5.481 trillion yuan, up by 28% year-on-year (Statistical Communique of the People’s Republic of China on the 2017 National Economic and Social Development 2018). The Chinese market will become the world’s first $1 trillion online retail market by 2020, according to a forecast by Forrester Research, a market research firm (Meena 2017).
According to China’s National Bureau of Statistics, online retail transactions in the country are larger than the combined online sales of USA and Europe.
In 2015, four of the world’s top ten internet companies ranked by market capitalization were Chinese (Seth 2018). China is now the world leader in e-commerce, with ordinary Chinese using their phones to invest, buy groceries or pay for street food.
Alibaba, which dominates the e-commerce scene in China, raised $21.8 billion in its initial public offering, which valued the company at $231.4 billion, larger than Amazon and eBay combined. Its initial public offering (IPO) stands as the world’s largest at $25 billion, beating the record set in 2010 by the Agricultural Bank of China (Mac 2014). This made the brand a household name outside of China and the fourth most valuable tech company by market cap, ahead of Facebook, IBM, and Oracle. Alibaba-owned websites now hold an estimated 80% of the total online shopping market share in mainland China. Its 2017 Singles Day promotion alone generated more than US$25 billion in sales—a 39% increase on the previous year and more than double of the combined Black Friday and Cyber Monday sales in the USA.
It Is Not Just Books and Apparel
Certain categories enjoyed a natural advantage in selling their products online—particularly those like books and apparel, where the internet offers you endless shelf space to accommodate every taste and preference. Similarly, transparent and attractive pricing, and poor service from brick and mortar intermediaries, propelled the consumers to the online world in the areas of airlines and hotels.
Some categories such as FMCG did not have a natural advantage for migration to online. As a result, the share of online channels for FMCG sales is relatively modest and the Kantar World panel e-commerce report indicates that global online FMCG sales only account for 4.6% of the total FMCG sales, with a value of $48 billion (The Future of eCommerce in FMCG 2017). It is forecasted that this share will reach 9% of all FMCG sales even by 2025 (double of what it is today) with a value of around $150 billion. Unlike in many other things digital, China does not lead the way in FMCG online sales—the share of online FMCG is comparable to other developed markets such as France and UK but lags behind Asian developed markets (Korea—19.7%; Japan—7.5%). However it showed a very strong growth in 2016, and if this growth continues, it will resemble more like the Asian developed markets than Europe or America, and will shift more heavily to online for FMCG too. Another interesting aspect of the Chinese online grocery sales is that 50% of the value is from the sale of beauty products. The relatively low purchase of food and daily household necessities online is linked to the Chinese habit of small and very frequent purchase of daily necessities, which is itself greatly influenced by the high importance accorded to freshness, especially for food products. There is a developed infrastructure of stores and markets selling grocery products, including wet markets, mom and pop stores, as well as modern trade. Increasing share in the FMCG and fresh foods hinges on faster deliveries—so that the consumer does not have to compromise on the primary need of freshness.
Hairy Crabs Online
Hairy crab, as the name suggests have bristles on their legs, but their scrawny bodies are infused with an extraordinary taste and flavor, which makes them hugely popular among the Chinese when they are in season around Autumn. Consumers mostly buy them from the supermarkets, hypermarkets or wet markets, where they are invariably sold alive, as no Chinese consumer will accept the creature when already dead. Given this one would think that it will be a difficult category to shift online. However, JD.com and Alibaba are doing precisely that and developed the ability to deliver live hairy crabs from Yangcheng Lake in Jiangsu province, which is known to produce the best quality of the crustaceans. In the beginning of the season in 2017, Tmall sold 140,000 hairy crabs within a minute of making them available online. JD.com sold gift cards for two million hairy crabs in the first 24 hours. With innovative marketing and huge consumer appetite, there are no limits on what can be sold online in China.
Haitao, Daigou, and Tourism
It has been mistakenly reported that 122 million Chinese tourists went overseas in 2016 (Chinese Outbound Tourism Statistics in 2016: 122 Million Chinese Tourists Make Outbound Trips, Spend $109.8 Billion 2017). Actually, only around 20 million real tourists who went abroad, and the remaining 100 million were shoppers in the guise of tourists. The most popular way of buying imported goods remains personal overseas trips, ostensibly for tourism but firmly revolving around the task of securing coveted products that the Chinese are not able to find on the domestic shelves. It is estimated that Chinese cross-border sales reached $100 billion in 2017 and are expected to increase by 15% in 2018 (Cross-Border Retail Ecommerce Sales in China, 2016–2021 2017)
Plastic bags with distinctive patterns and logos (commonly referred to as luxury products in the industry because of their excessive price) have been a perennial favorite. Louis Vuitton stores in Paris, Bloomingdales in New York, Selfridges in London, and now also the Japanese departmental stores all hire Chinese speaking shop assistants to welcome and service the droves of Chinese shoppers.
However what the Chinese consumers buy overseas is becoming curiouser and curiouser. The latest item on the popularity charts among the tourists to Japan was toilet seats. The Chinese want to experience everything—including the pleasure of sitting on a warm toilet seat which performs the required hygiene tasks through water jets, as the consumers play Angry Birds on their iPads. Japanese rice cookers also figured high on the list. And so did Japanese rice, in spite of being 10 to even 100 times more expensive than the domestically grown variety. It is difficult to say whether the popularity of Japanese rice was driven by a belief that Japanese toilets work best in expelling the digestive residue of Japanese rice, preferably cooked in Japanese rice cookers.
When the Chinese are not traveling overseas, they quench their thirst for imported goods through haitao 海淘. Haitao refers to the phenomenon of scouring the global websites to buy the products that the consumers want. International e-commerce websites like Amazon now allow the Chinese to directly purchase from their international site and have the products shipped to China. Other websites require a local address and do not ship directly to China. Logistic companies have cropped up which provide a local address where the website can ship to, and the company then transfers the product to China.
More and more Chinese are also purchasing imported goods through overseas contacts and agents—a phenomenon referred to as daigou 代购. Daigou is preferred to buying goods which are already imported by dealers who hawk their wares on Taobao or import them as per the request and demand of the buyers. Daigou and haitao offer consumers a sense of assurance of quality and authenticity. Daigou agents can also be contacted on Taobao but are now being increasingly reached through WeChat.
The most popular ingredient of the daigou and haitao baskets is baby milk formula (Xia, Cross-border e-commerce is luring Chinese shoppers 2016). In fact, according to a recent survey conducted by PayPal Inc, the US-based payment service provider, Chinese parents, especially those with children under the age of six, have become the largest spenders on overseas online stores. Chinese parents want to buy only foreign goods for their babies, as the domestic producers have lost their trust. Not just the melamine scandal from a few years ago, but intermittent and frequent news for various types of contaminations and adulteration has put parents on the edge and they want to do everything to protect their children.
The Chinese behavior of buying foreign goods is driven by certain basic needs. Foremost of them is a desire to buy the safest possible products for themselves and their families. It is also driven by a curiosity and a desire to experience new delights and a quest for a better life. Domestic manufacturers need to up their game if they also want a good share of the new Chinese consumers.
Leveraging social media for e-commerce has been a challenge in the developed markets. Social media is the personal space of consumers, where they go to enjoy emotional warmth and interaction with their friends and loved ones. How do they react to messages from brands in such an environment? What can brands do so that they are not seen as intrusive and blend well with the natural social interaction?
In sharp contrast to the developed markets, most consumers in China have already embraced commerce in social media. One of the key reasons is that in China word of mouth is the most important influences on consumer choices. Recommendations and endorsements coming from your friends and acquaintances on social networks are trusted—which is important particularly at a time when brands and companies are facing a crisis of trust. Repeatedly quality scandals ranging from the melamine milk to swill oil or 地沟油 digouyou put the consumer in a dread (Chinese restaurant staff jailed for cooking with ‘gutter oil’ 2017). In fact, it is not just a Chinese or Asian crisis, the developed world has been treated to horses eaten under the label of beef.
In this context consumers are looking for assurance; they are looking for familiar voices that they can trust. They want to know from their friends what they are using which is not going to poison them or make them sick. And that is the reason why social commerce is growing and is likely to grow further.
To a great extent, the credit also goes to the online platforms, which have been trying hard to create a social character within their ecosystem. Taobao, for instance, has added a feature called wendajia or “ask others” within their shopping platform (‘Social Commerce’ Blossoms On Mobile Taobao 2016).
Brick and Mortar Retailers Shift Online
While Alibaba seems to have cornered a large proportion of the online market, the traditional brick and mortar stores, including global players such as Metro are upping their ante in China. In 2015, Metro China launched a flagship online store on Alibaba’s Tmall Global platform. Walmart acquired full ownership of Yihaodian (yhd.com), a Shanghai-based online supermarket, in 2015 and has entered into a strategic partnership with JD.com, one of the largest shopping platforms in China. The French supermarket Carrefour launched its own e-commerce website and also a mobile app.
Bridging the Gap
While online shopping does have lures, the joy of actually browsing through stores, picking up and examining products as you wish, trying them out to assess what they will do to your sex appeal and interacting with charming sales staff remain strong factors in favor on the traditional modes of shopping. Online stores are trying their best to try to bridge this gap through technology. Several online stores already offer the ability to see yourself virtually wear the clothes that you are considering to buy, if you upload your pictures and dimensions for the website to create your avatar.
In July 2016, Alibaba revealed a planned offering of “Buy+” virtual store which leverages virtual reality (VR) technology to enhance the customer experience. Buy+ users need to don a VR headset to enter a virtual shopping environment, a 360 degrees view and almost all the attractions that the shopper may miss from the traditional store. This includes a pretty shopping assistant called Xiaoyu, who will guide you through your experience and help you try out the products which catch your fancy. In fact, it goes beyond what the brick and mortar stores can offer—and includes a virtual catwalk, where models are strutting wearing the apparel on sale (Store 2016).
While urban e-commerce is booming, the rural activity is also significant. The CNNIC report indicates that there are over 200 million internet users in rural areas and 22.4% of the online shoppers live in townships (zhen 镇) and villages (cun 村) (CNNIC—China Internet Network Information Center 2016). However it is not just as consumers, the rural Chinese are also becoming active suppliers of goods on the internet. Qingyanliu village (a part of Yiwu city, which is well-known around the world for being a center of trade in small commodities), in Zhejiang province, has been proclaimed as China’s number one online village. Most of the villagers are Taobao store owners. Lei Jin, the founder of Xiaomi feels that the internet businesses run from rural areas will be the next big thing after the mobile internet. Xiaomi has been actively investing in rural internet startups in rural China.
In April 2016, the State Council issued a statement saying that the government will accelerate its spending in establishing rural broadband networks. This is seen as a part of the program that aims to integrate the internet with the logistics sector, with an eventual aim of reducing costs, increasing income of the rural producers, and stimulating consumption through providing low priced products. As bridging the urban-rural income gap is one of the key challenges for the government, ensuring better market access and prices to rural producers is seen as a route to addressing the challenge.
Chinese e-commerce giants such as Alibaba, JD, and Suning are increasingly investing in rural areas, both to buy from and sell to. Similarly, logistic companies are salivating at the prospect of catering to the gigantic rural population, which was so far at the mercy of China Post as the only delivery mechanism.
Double Eleven Festival
No discussion on China’s e-commerce can be complete without the mention of the Double Eleven festival. How is the date (November 11 or 11.11.), which appeared like a natural symbol of singlehood, got transformed into a shopping bonanza is a miracle—but a man-made miracle, and a great testimony to the marketing prowess of the Alibaba group, which tentatively tried to cook up a festival in 2009, trying to boost their sales in the relatively quiet period after the National day and before the new year. The consumer enthusiasm for the stimulus was incredible, and they started lapping up the goods as if there was no tomorrow. The bells and whistles that Alibaba kept on adding, and the range of brands which kept on enrolling in the orgy, further stoked the consumer appetite and frenzy. The year 2017 was marked by a focus on cross-border e-commerce, allowing the Chinese consumers from buying from all over the world. On the single’s day of 2017, Alibaba sold goods worth 168.2 billion yuan—a 39% increase over the previous year. The phenomenon is not restricted to Alibaba, every e-commerce platform has joined the fray, and JD.com, China’s second largest online retailer, also managed to offload 127 billion yuan of merchandise to the consumers.
It is well established that mobile has a disproportionately high importance in this part of the world. Often because of low incomes and lack of availability of broadband, mobile is not a supplemental but often the sole mode of connecting to the internet. It is not surprising, therefore, that the biggest change that China has seen in e-commerce is the growth of shopping with the smartphone, rather than on the computer. There are several factors responsible for this, foremost of which is that the Chinese internet market is now heavily a smartphone access market. Ninety percent of the 710 million internet users in China access the net through their smartphones. And over 80% of online shoppers shop with their mobile phones. The fact that a large number of Chinese consumers in large cities have long commuting, most of which is spent glued to the phone, also definitely contributes both to phone internet access and phone shopping. Three-fourths of the Chinese online shoppers now say that the mobile phone is their most important shopping tool.
At the same time, the online retailers have improved their mobile stores, which are no longer the squeezed (Virtual red packets are most popular way to gift money in China as digital disruption hits tradition 2018) versions of their full-screen websites, designed for display on large computer screens. Every retailer now has a specific Android and OS app, which makes smartphone shopping much more interesting and comfortable than before—sometimes even more so than shopping on the computer.
The intrinsic portability and versatility of the mobile device makes it a much more powerful shopping aid than a PC could ever hope to be. Its unique characteristics boldly take e-commerce where it has never been before—right into the heart of a traditional store. The fact is that consumers are bent on using their mobile device as a tool for e-commerce. The traditional stores can fret about it, try to block the usage of internet in their stores, or they can take a more positive attitude and actually encourage internet use in the store by providing free wi-fi connectivity and ensure that the consumers use the internet to the best advantage of the store. A mobile phone in the store can become as much a useful tool for the consumers as it can for the retailers. With large screen smartphones, retailers can display their catalogs on the shoppers’ mobile phones, send them discount coupons and special offers, and use it as a payment device. By leveraging the shoppers’ mobile the retailers can actually reduce their investment in expensive and short-lived equipment and devices.
Mobile becomes more powerful when combined with locational services and social media—SoLoMo which utilizes mobile but then supercharges it by recognition of the specific location and opportunity to interact with your friends at that location makes a potent mix. Retail stores such as Starbucks are already utilizing the power of SoLoMo to lure the shoppers to their stores.
The growth on online payment methods, which do not require the consumer to enter their credit card details on the smartphone, has given a phenomenal fillip to mCommerce. Most websites allow you to shop using online payments such as Alipay (or Zhifubao) with merely imputing a pin or with just your thumbprint. In fact, one of the most significant and dramatic changes in the buying habits of the Chinese consumers in the past few years has been the mode of payment. While Apple Pay was introduced in China in early 2016, Alipay (or Zhifubao) is already a nearly universally accepted method of payment for both online and offline shopping. WeChat money (also called Tenpay) is also catching up after heavy promotion and usage for exchanging hongbaos or red envelopes, a common practice during the Chinese new year (Virtual red packets are most popular way to gift money in China as digital disruption hits tradition 2018). Among urban online shoppers, the usage of Alipay and WeChat is higher than the use of credit card. Alipay enjoys a market share of 63%, and WeChat Money has cornered around 23% of the market. WeChat as the challenger has been trying to catch up with attractive promotions—most of which involve winning sums with a number of 8s in them (8 being considered the luckiest number by the Chinese). Eighty-six percent of online shoppers in China claim to use online payment methods. According to the research firm, Analysys, China’s third-party mobile payment market reached 23 trillion yuan in the second quarter of 2017, up 22.5% from the previous quarter (China’s third-party mobile payment market continues rapid expansion 2017).
The key attraction of these online payment methods is that they are considered easier and faster. There is no need to input credit card details. Payment with a mobile phone is particularly easy and can be made merely by a finger print touch or by scanning a QR code. The two payment methods have had a tremendous effect on the cash management practices of the young Chinese, with many of them directly transferring their monthly salary to their Alipay account, then transferring a part to eBao, the savings product linked to Alipay, which offers a much better interest than the banks, and using the remaining for all payments—from McDonald’s, convenience stores, taxis to online shopping. Expectedly the millennials have embraced these payment systems most enthusiastically and often go about without any cash or just a few kuais in their pocket. According to research findings released in August 2016, by IPSOS, a research firm, and Ogilvy, an advertising firm, 12% of college students go around with absolutely no cash in their pockets. Among the older consumers, aged 23–29 years, 30% normally have only 100 yuan or less in their wallets. Another research done by Tencent shows that 84% of the Chinese netizens have no qualms or fears about leaving home without any cash at all (IPSOS 2017).
The implication of the embrace of cash-less payments is not just on the mode of payment. Behavioral economists tell us that consumers tend to spend more liberally when it is not by cash. The American problem of credit card debt is a clear proof of this phenomenon. When the consumers are confronted with an attractive target of purchase, two parts of the brain get engaged in a frantic activity. One of these is the nucleus accumbens, which is a part of the dopamine-reward system of the brain. The extent of the activation of this part of the brain is an indication of how strong is the consumer desire to acquire the object on sales. However, at the same time, another part of the brain called insula, which is associated with negative thoughts is activated at the thought of paying the price for the product (Lehrer 2009). The activation, it seems, only takes place when paying with cash, and scanning a barcode or paying with a mobile app, which puts distance between the product acquisition and actual payment, prevents the insula from exercising the restraining effect. The growth of mobile payments hence is not only making shopping more convenient, it is possibly also boosting the economy, by insulating the consumers from the pain of payment and thereby encouraging consumption and boosting the economy.
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