In a new series, Mark Tanner, managing director of marketing agency China Skinny, talks to Exporter about the fast-moving e-commerce landscape in China.
Exporter: When approaching the China market for the first time, what are some of the fundamentals that export firms should be aware of in terms of size, opportunities, trends, cultural and demographic breakdown, and consumer habits and preferences?
Mark: I think it is best to look beyond the ‘millions and billions’ we often see coming out of China and realise that even the biggest foreign brands in China only capture a small share of that market. For example, the top 100 brick & mortar retailers account for just 8% of China’s total retail market, with the vast majority made up of regionalised and family-run stores. Most of the successful exporters have initially focused on one city, region or cluster of similar cities to launch their products. China Skinny has worked with clients, analysing numerous variables to determine the cities that present the greatest chance of success. In many cases it is beyond the saturated and hyper-competitive tier-1 cities like Shanghai and Beijing, instead focusing on the less known, fast growing lower tier cities which still have 5-10 million people. In some instances they are the clear choice, but for more sophisticated and unfamiliar products, which many New Zealand exports are, consumers living beyond tier-1 and some tier-2 cities often aren’t ready for them.
Another factor to consider is target demographic. Whilst many brands in New Zealand may target cashed-up Baby Boomers in their home market, older generations in China are often a tough sell. Chinese Millennials (18-30) are the highest earning group in China. Someone born in the 90s is seven times more likely to have a university degree to one born in the 70s. They’re also more likely to live in the city, where incomes are three times greater than rural areas. Millennials are also much more liberal spenders – they haven’t grown up in austere times like older generations, so don’t have the same inherent programming to save. Most importantly, they are much more open minded about foreign products and are less price-focused than older generations. These consumers are very digital savvy, more than any Kiwi demographic, and are less responsive to traditional marketing techniques.
Exporter: In terms of marketing strategy – what advice can you offer? Are there any short-cuts? How can smaller businesses afford to buy the required research and information? And what’s the best way to approach market validation
Mark: –commerce platforms are quite transparent and show the number of sales and general customer feedback. Bearing in mind that some of these sales and comments can be fake, as e-commerce is now a significant channel for most products (overall it accounts for around 14% of the retail market) it can be a good way to validate demand for your product category. Your products may already be selling through the grey daigou channel, which will also be a good barometer for potential demand. Daigou can also be a good place to enter and test the market with minimal investment, but should be approached with a considered strategy.
Key influencers (referred to as KOLs in China) are often a powerful way to amplify your positioning and break through the clutter. However, the channel is much more saturated than other markets – 39% of Chinese food & beverage ads have celebs in them, versus around 10% in markets such as the UK and US. This means influencers can be quite expensive, with a diluted impact, so it is important to find the right people. Grass-roots influencers can often be more powerful and cost effective than bigger-names.
Exporter: What are your top tips for Kiwi firms looking to access the e-commerce space in China? What are the keys to successfully working through an in-market partner and Chinese-based websites?
Mark: Although e-commerce is one of the buzzwords in China, marketplaces are incredibly crowded, with more than 10 million vendors just on Alibaba platforms. TP partners are businesses that assist with running your e-commerce store, and finding the right one is a key component of success. But ensure that the TP isn’t working in isolation of other interconnected channels. For example, 25% of all e-commerce sales originate from social media. Chinese hosted websites are important sources of information for consumers and offline touch points are also influential in e-commerce sales.
Chinese are inherently untrusting of products, and as a result do significantly more research before purchasing. The customer journey for the average product has been 7-10 touch points, so it is valuable to understand how each of those stages fits into the thought process and what information they are seeking. Chinese e-commerce pages have a lot more information on them than in New Zealand, and it is also important to consider e-commerce as a powerful marketing channel as well as a sales channel.
Exporter: What tips can you offer in terms of branding for the local market? And what are some of the fundamentals of product positioning and distribution?
Mark: There are an around 500 new products launching every day in China, so brands need to have a good reason why consumers should buy them, coupled with relevant marketing and sales channels. Many brands think of China as one homogenous market, but it can be quite varied. Once a business has defined a target geography, positioning and communications should be tweaked, based on the characteristics of that area. For example, if you are selling skincare, consumer needs in very dry and smoggy Beijing are quite different to subtropical Guangzhou. Similarly, food tastes and lifestyles can be quite different. But the less obvious cultural differences should be considered in messaging. For example, in Beijing nationalistic and family bonding communications resonate with consumers. Men can be quite macho. In Shanghai, communications are typically more aspirational and slick, and men more metrosexual.
Although the other two tier-1 cities – Guangzhou and Shenzhen – are a little over 30 minutes apart by fast train, they are quite different. For example, Guangzhou is an old city with 80% of the population speaking Cantonese. Shenzhen wasn’t much more than a fishing village a generation ago, but has attracted ambitious migrants from around the country, so Mandarin is the most spoken language.
China Skinny worked with Lewis Road Creamery who were advised to test their products with Chinese New Zealanders, but in their wisdom did the evaluation in the Chinese city they are targeting. We have many studies about how quickly Chinese assume local tastes after migrating. Their perception of colours and shapes can even change. It also gets back to Chinese from different regions being quite different, so testing with New Zealand Chinese could be from a region quite different to the target market.
I’d also suggest spending time on the ground in that location, and ensuring that your distributor is strong in that area, having strong relationships with the key stores and suitable staffing in that city/region. Even digital-focused strategies are enhanced by regional targeting, with a component of offline marketing, whether it be physical retail, influencers, roadshows or events.
Exporter: What changes in the China market do you anticipate in 2017? Are there any sectors that will be worse affected than others? And how can exporters protect themselves?
Mark: There are two big trends in China. The first being trading up, as consumers become more affluent, more aware of quality and already own cheap versions of many products. The other is a shift to wanting experiences rather than just wanting goods. This can be an accessible experience such as going to the cinema or a Starbucks coffee, to travelling to far flung locations around the world. It is also reflected in how they furnish their homes.
Chinese brands are becoming stronger across most categories, with improved quality control, wider reaching distribution partners, and they are often earlier adopters of influential digital channels than Western brands. Chinese are inherently nationalistic, and are increasingly buying their own products, if they are of equal quality and value as foreign ones.
New Zealand is well-placed in the categories that are least affected by rising Chinese brands. These are products that are ingested or rubbed on skin, such as food and beverage, health and skincare – simply because many Chinese don’t trust local products and supply chains and are increasingly trading up to safer, healthier and more premium brands. Tourism and education are two other categories which can’t be easily replicated in China. New Zealand’s great tech export scene will have a tougher job in China, bar niche players such as Vista. China is a country of engineers, who will replicate tech products quite quickly, and will often be advantaged by Government policy.
China changes faster than anywhere, and brands selling in the market should be nimble, prepared to constantly tweak strategies and tactics, while retaining consistent core values. I would suggest regularly visiting China, and reading resources available on China from NZTE and companies like China Skinny. We publish the most read newsletter about marketing to China globally, which is free, and a lot of exporters find it a valuable way to keep up with this ever-changing market.
