In early 2016 Jack Ma, CEO of Alibaba, proposed that six countries open “national wine pavilions” on Tmall.com. The purpose was to deliver a more competitive offering to the consumer and in doing so disrupt existing industry norms. Around 18 months on New Zealand is just one of two countries to have a national wine pavilion successfully launched and operational.
Damon Paling, trade commissioner for New Zealand Trade and Enterprise in Shanghai, distils experiences to date into some key learnings that any New Zealand company can adopt as it plans to win in China’s competitive e-commerce market place.
The business case
An invitation to join Tmall was received in March 2016 with a launch date of September 2016 so as to enable participation in “jiu jiu jiu jie” festival. Somewhat hastily, data was downloaded from the back-end of Alibaba and this showed that the wine market in Tmall and Taobao was enjoying CAGR (Compound Annual Growth Rate) of a whopping 31 percent. Women purchasing wine showed a great opportunity, especially for those aged between 23 and 35.
Unfortunately, the same data also showed that the average price was around RMB68 per bottle, less than half of what an entry-level New Zealand Sauvignon Blanc or Pinot Noir would retail at in traditional offline channels.
A dubious business case? Yes. However, saying “no” to Alibaba was not an option. Finding a new way to win become the challenge.
Preparing to launch
Selection of a Trusted Partner (“TP”) to operate the flagship store can be over-engineered. Pragmatically, it is more likely than not going to come down to a combination of what may have already been short-listed by Alibaba, terms of trade to be negotiated with the TP, and managing any conflicts of interest.
Moreover, the TP is only going to be as good as you make them. A simplified selection process saw Vinehoo selected as the TP for the wine pavilion.
Price setting was all about conflict management so that the same wines could live alongside each other in different channels. To that end, pricing was set at levels comparable with what the same labels are retailing at in traditional offline channels such as a supermarket, hypermarket, or speciality store.
In this category, “comparable” meant targeting differences in pricing of no more than 15 percent. Some wineries also elected to list labels on the wine pavilion that were not available in comparable offline channels. All New Zealand companies face this exact same challenge. Resourcing the business with Chinese talent is key to managing pricing channel conflict.
To this end we talk daily with the wineries and the TP and constantly scan data to make pricing refinements.
Keeping it simple with a ‘soft’ launch
No need for a ‘big bang’ start. Only moderate range wineries, wine varietals, and price points were initially selected for the launch. We needed inventory that was in-market in order to fulfil sales orders in a timely manner. A complete product range is unnecessary for ‘day one’.
Traffic volume is going to be low in the early days. Contemporary thinking is to focus on just two to three so-called hero items for the launch and then hang a range of perhaps 15 products underneath. The “daigou” trade and existing noise on social media should provide an indication as to the two to three hero products.
Realising the desired brand positioning was achieved by using existing brand assets, including static imagery, short videos, narrative, and the like. This focused on education materials as well as the stories of individual wineries. In other words, existing brand assets are simply being recycled through various platforms. No unnecessary reinventing of the wheel.
Channel conflict was managed by enabling existing distributors to sell to the TP and “clip the ticket” on the way through to online retail with a reasonable margin relative to their risk and return.
Planning for a ‘last minute mad panic’ even when embarking on a soft launch is prudent. Unforeseen documentation issues, technical issues, and brand asset issues will invariably arise. Nervous moments at the last minute will be overcome by ensuring a strong internal project team and soliciting great efforts from a highly motivated TP.
Post-launch traffic building and revenue growth
Where existing social media (WeiBo and WeChat) are in play, first aim to leverage these followers of the brand and convert them into “super fans” and consumers of the product.
Be fun and interesting with digital marketing and promotions. This drives more traffic to the flagship store and revenue growth. In the case of wine, existing social media had 55,000 followers.
As a mobile first market, target no less than 85 percent of unique views to be from a mobile device. The bounce rate on the home page should be no higher than 30 percent.
Flagship store design and digital marketing is tailored for this mobile-first market accordingly. Traffic sources will likely come from a combination of paid diamond banner, paid direct paid, free search on Tmall.com and Tabao.com, and organic search from past purchases. The TP should be working with the Tmall category manager to improve free traffic.
The return on investment from digital marketing is forecasted through predicative modelling.
Make ongoing refinements for each campaign
Key performance indicators (KPIs) were negotiated and agreed with the TP in the following three broad categories. These categories apply equally to any New Zealand company going online:
(1) Marketing and operation, such as traffic and conversion rate, support customer flow and platform, monitor spending through paid traffic.
(2) Product, such as monitoring product status, ensuring brand exposure when joining promotions, giving consumers suitable product at a reasonable price and creating a hero product to drive sales.
(3) Customer relationship management and loyalty, such as in the platform, customer relationship management, retaining old customers, and recruiting new customers, making new offers available to key customers first.
Through to May 2017 the wine pavilion enjoyed an 86 percent mobile-first sales rate and a conversion rate of 2.4 percent. The average basket value is RMB560 with 2.8 bottles sold at an average price of RMB168. All of these metrics are positive.
However, the bounce rate sits at 54 percent and needs to fall to 30 percent. The average page view is 3.5 and this should increase to five. Unique page views total only 33,000 and this must increase dramatically through securing more traffic at an affordable price during offline and online festival periods – including “juhuasuan”.
Despite best planning, anticipate a “last-minute dot com” experience with a soft launch and limited traffic.
Proactively manage channel and pricing conflicts so that all partners in the market can win. Building traffic is going to be gradual through social media, digital marketing and search engine optimisation.
A rule-of-thumb would be to invest 20 percent of gross sales revenue to build traffic (brand). Consider cross-product promotion with other leading New Zealand brands and resource internally in order to enable continuous negotiation with the platform.
You can save time and money by recycling existing brand assets through different platforms. This also helps to deliver consistency in brand personality and positioning.
Leverage technology through “just one touch” to link consumer research with consumer purchasing.
Finally, invest in the relationship with the TP and make conscious well-communicated decisions on the division of labour and division of decision-making as related to daily operations.