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The rise of vertical, social, e-commerce platforms in China

Commentary

China’s online retail market has seen explosive growth in the last few years and is now one of the world’s largest. By 2020, AliResearch expects China’s online retail market to exceed 10.4 trillion yuan (around NZ$2.1 trillion) in sales. This is a huge increase from 2015 when China's online retail market was only worth around 3.9 trillion yuan.

This growth will mean online retail will account for about 20% of the total national retail sales volume. Social media is a driving force in China’s online retail market and all indications are that this will continue to play an important part in the retail market.

The following are some key trends we are seeing in the online retail market, and where we think they are heading.
•     Offline to online
•     Online to social
•     Social to vertical

Offline to Online
The growth of the e-commerce market can be directly linked to a transformation in China’s traditional retail industry. Between 2009 and 2013, a large number of brick and mortar department stores closed or changed their business models. This gave e-commerce giants an opportunity to entice more consumers with competitive pricing.

The move from offline to online is irreversible now. More than 100 million products are listed on Alibaba platforms. We’re seeing many B2C (business to consumer) e-commerce marketspaces, such as Tmall.com, JD.com and VIP.com, benefit from the move to online retail. Even luxury and automotive brands are jumping on the online retail bandwagon by opening flagship stores on Tmall.

To take advantage of the online shopping environment, businesses need to pay attention to a few key trends:
•    Hero product: This will be the top selling goods on e-commerce stores or platforms. These will be eye-catching and competitively priced to drive traffic to the online store.
•    Traffic: Understand how the number of online users who visit a website is measured and where they come from.
•    Conversion rate: The percentage of site visitors who actually place orders or make payments. This is a very important measure for e-commerce effectiveness.

Online to Social
Singles Day which takes place on the 11th of November, created by Alibaba in 2009, is the biggest shopping day of the year. Although Alibaba Tmall processed 35-billion-yuan in transactions on Singles Day in 2013, Chinese social media platform WeChat was also recognised as a game-changer at the time, even by their competition Alibaba.

WeChat is an instant messaging and social sharing tool that allows consumers to send payments, pay bills, and shop online or offline in stores by scanning QR codes generated in the online environment. People can then share photos and comment on the purchase they’ve made via WeChat Moments.

Other social-commerce platforms have developed over the past few years, like Xiaohongshu.com (Little Red Book, 小红书) and SMZDM.com (什么值得买). These are also popular ways for consumers to share and comment on their shopping experiences.

As technologies and trends have continued to develop over the past few years, social commerce has taken off in a big way in China. Here are two acronyms to get your head around:
•    UGC: User Generated Content: Chinese consumers like to ask other internet users for advice and product recommendations before making a purchase. Consumers tend to trust UGC more than a company’s own marketing content.
•    SoLoMoCo: social, location, mobile, commerce. Otherwise known as location based marketing undertaken through social media. This refers to an approach by companies to integrate social media and mobile technology with location-based services, making it easy for consumers to purchase goods and services.

Social to Vertical
So what’s next in the world of social media and e-commerce? This year we’re going to see the rise of the vertical marketplace – online platforms where goods and services are sold to specific industries, trades, professions, or groups of customers with specialised needs.

Sites and apps like KEEP which focuses on fitness and Gegejia.com (格格家) for the young female snack food segment, are examples of successful vertical markets right now.

The vertical market has a few advantages:
•    Companies can target customers with a limited budget. This is especially advantageous as costs to advertise on the top B2C e-commerce platforms are high at the moment.
•    Millennials are willing to spend money on symbolic and characteristic products. “Little and Beautiful (小而美)” are popular words in the China e-commerce space, which perfectly describes the trend towards niche and high-quality products that are particularly well suited to vertical markets.
•    Vertical platforms naturally bind like-minded consumers together leading to strong social communities centred around a particular sector or product.
•    Vertical platforms are providing better content and more meaningful experiences in some areas. Even the founder of WeChat recently pointed out that it is a challenge to deliver valuable content to the right audience.

While the trend of tomorrow’s e-commerce marketspaces is towards niche products and services, it is not a replacement of traditional retail but rather an integration with online, social and vertical e-commerce platforms.

For New Zealand business looking at doing business online in China, and thinking this all sounds hard, remember a few key things:
•    Look at what others in your sector are doing online
•    Take your time to understand the market
•    Accept that e-commerce in China will continue to evolve, particularly in the social space

Good luck on catching the next wave of the e-commerce evolution.

By Scott Li, Programme Leader e-Commerce, Greater China, NZTE.