May 4, 2016
China, the world’s largest and fastest-growing e-commerce market is creating huge opportunities for companies that act quickly.
A recent McKinsey article “How savvy social shoppers are changing China’s e-commerce” said that as e-commerce penetration rates plateau in high-tier cities, online shopping among consumers in low-tier cities is quickly rising.
“Our research also revealed positive trends in multichannel services, known in China as online-to-offline (O2O) services.”
O20 services producers are currently using investment capital to cut their prices and thereby win customers.
The survey showed that customers appreciate the convenience and quality of O2O services - particularly for travel, dining, and transportation, on which they increase their total spending after they start to use O2O options.
“Their responses confirmed our view that the e-commerce and O2O-services markets still hold enormous potential.”
Users across digital devices
Catering to users across digital devices has become essential for consumer-facing businesses because China’s digital consumers overwhelmingly use mobile devices to access the Internet.
At the same time, while mobile-first marketing strategies are important, PC-based offerings should not be neglected.
“They spend 17 percent more on e-commerce than their mobile-only peers.”
They also shopped online in 29 percent more categories and interacted 14 percent more with businesses through social networks, using such interfaces as brands’ public.
China’s digital consumers purchase 30 per cent of their consumer electronics products and small appliances online categories.
Nearly 60 per cent of consumers bought apparel online at least once in the past three months.
McKinsey said that if the apparel sector wants to increase its online-value-share percentage above its current level in the low 20s, “all elements of the e-commerce experience—including merchandise selection, style advice, and returns and exchanges—need to become as appealing as shopping in physical stores.”
Food (including packaged and fresh food) has also reached a high level of e-commerce adoption in China, with nearly 50 percent of consumers making some purchases online.
However, these online purchases account for only five percent of consumers’ total food spending.
“The small size of the average online food basket, at less than $15, suggests that consumers are not yet going online to make food purchases as large as those they make at supermarkets.”
Companies that can entice consumers to do routine grocery shopping online will be able to capture a lot of business.
Three important trends
Three trends will have important implications for how consumer-facing businesses can continue pursuing revenue and profit growth in China.
1. Low-tier cities consumers outspending high-tier cities online.
The e-commerce activity of low-tier cities now rivals or surpasses that of high-tier cities. Low-tier cities are now home to 74 million more online shoppers than high-tier cities.
Even with these gains, McKinsey said low-tier cities still have tremendous potential for e-commerce growth.
“Some 160 million people in low-tier cities who use online services have yet to begin shopping online. That’s nearly as many people as the number of online shoppers in high-tier cities today.”
Major e-commerce platforms are investing heavily to acquire customers and build logistics networks in low-tier cities.
2. Social media - powerful channel for initiating online purchases
Most digital consumers use social media to do product research or get recommendations.
In fact, consumers are also using social media to act on those decisions.
McKinsey said 31 percent of the WeChat users surveyed initiated purchases on the platform—double the proportion of the previous year.
Impulse-driven categories like apparel and personal care were most popular, with about 25 to 30 percent of online spending in those categories.
3. Consumers are buying more goods from cross-border vendors
Many Chinese consumers are using cross-border E-commerce platforms to purchase overseas products.
Nearly 20 per cent of the digital consumers surveyed bought some goods from vendors outside China.
Cross-border shoppers preferred items that are either too expensive or too scarce at domestic vendors.
For example, Tier 1 cities shoppers used overseas sellers most often for premium healthcare products (for example, dietary supplements, medicines, and medical instruments) that supplement the offerings of local retailers.
Tier 2 cities consumers purchased luxury goods from foreign e-commerce vendors.