The Financial Times

China E-Commerce: A Bonanza for Brands

Every day an estimated 150,000 new Chinese shoppers join the ranks of the hundreds of millions in the country who have discovered e-commerce.

著者：Jason Ding, Bruno Lannes and Weiwen Han

First published on 4月 18, 2016
min read


This article originally appeared in The Financial Times. Every day an estimated 150,000 new Chinese shoppers join the ranks of the hundreds of millions in the country who have discovered ecommerce. Penetration will double by 2020, according to our estimates, with the total value skyrocketing to Rmb 10tn ($1.5tn). But this dramatic adoption of online shopping is not the biggest news to emerge from Bain & Company’s latest study of China’s e-commerce market, conducted in partnership with AliResearch, Alibaba Group’s research arm. The unexpected finding is how e-commerce is shaping consumer behaviours and the profound influence those shoppers are having on online sellers. Despite its massive growth, China ecommerce is rapidly evolving to become more than a numbers game for both consumers and sellers. Shoppers no longer go online primarily for lower prices on generic goods than they could find in physical stores. Now, in record numbers, they’re turning to online commerce for quality products and brand names and looking for a satisfying shopping experience. In response, sellers have made a similar shift from focusing on quantity to a growing focus on quality, developing brand strategies and investments to serve this increasingly savvy market. They’re seeking valuable customer insights that can help them hone their branded offerings and improve everything from marketing to supply chains. The “branding” of the internet E-commerce started out as a vast C2C marketplace but now B2C accounts for half of all online sales, a share that is expected to grow to 70 per cent by 2020. The internet is providing easier, less expensive and more efficient access to brands. As a result, the share of branded products online increased by 7 percentage points between 2011 and 2014 to 65 per cent of total sales. Meanwhile, sales generated from overseas sites will grow annually by 30 per cent in the years ahead, reaching a total value of Rmb 1tn by 2020, as Chinese consumers look to brands outside the country that deliver higher assurances of health and safety. You can think of this transition from price to quality and experience as the “branding” of the internet. Also contributing to this boom in branded online sales: smaller brands find themselves unrestricted by the many barriers to entry and route-to-market obstacles they often encounter in the offline world. Meanwhile, e-commerce gives top brands greater access to fast-growing lower-tier cities, where they lack physical distribution networks. Finally, horizontal platforms such as Amazon—which sells multiple product categories—have responded to the new emphasis on brands by building closer alliances with vertical and brand-owned platforms as well as with offline retailers, which focus on a limited number of categories and typically are closer to their customers. These moves allow horizontal platforms to acquire consumer information and create more customer touchpoints via physical stores or social platforms, helping to deliver the long-promised era of Online-to-Offline (O2O) retailing. Becoming an internet-enabled brand Indeed, online retailers now view the internet as being more than just another sales channel for low-priced generic goods. Instead, it has become a vast opportunity for innovative, value-added services. For example, Tmall analysed the big data on apparel sales online to help the fast fashion brands on its platform plan where to locate their offline stores. Brands are introducing equally innovative business models. Some are breaking their old patterns of indirect communication with consumers and developing creative ways of co-creating brands with them. Schwarzkopf hair products launched FreshLight, a new hair color product, on Tmall, resulting in Rmb 4m in sales from 35,000 consumers in the first week. It then used the online sales data to adjust its offline product portfolio, planning distribution by stores and regions and negotiating contracts that are more favourable with offline wholesalers. Red Collar Company, a leader in the customised apparel industry, provides an optimised customer experience through mass customisation, and shortens the lead-time from several months to seven days. The customisation costs only 10 per cent more than mass production but brings twice the profit. The secret lies in its sophisticated big data information system. Winning brands view internet enablement as a transformation process that starts with a clear digital ambition and requires defining a digital operating model along the value chain (including R&D and supply chain, marketing and CRM, and sales and channel), supported by a digital organisation and infrastructure. Rapid innovation in China is delivering the future of online retailing and brand development. Brands that speed the integration of the customer experience into their business model, who co-create with consumers and view the online and offline worlds as one long continuum will be the ones that reap profitable growth. They’ll be the brands that stand out, outpacing competitors and changing the rules in the world’s largest and most dynamic e-commerce market. Jason Ding is a Bain & Company partner based in Beijing. Bruno Lannes and Weiwen Han are partners based in Shanghai. All are members of the firm’s Consumer Products and Retail practices.

This article originally appeared in The Financial Times.

Every day an estimated 150,000 new Chinese shoppers join the ranks of the hundreds of millions in the country who have discovered ecommerce. Penetration will double by 2020, according to our estimates, with the total value skyrocketing to Rmb 10tn ($1.5tn).

But this dramatic adoption of online shopping is not the biggest news to emerge from Bain & Company’s latest study of China’s e-commerce market, conducted in partnership with AliResearch, Alibaba Group’s research arm. The unexpected finding is how e-commerce is shaping consumer behaviours and the profound influence those shoppers are having on online sellers. Despite its massive growth, China ecommerce is rapidly evolving to become more than a numbers game for both consumers and sellers.

Shoppers no longer go online primarily for lower prices on generic goods than they could find in physical stores. Now, in record numbers, they’re turning to online commerce for quality products and brand names and looking for a satisfying shopping experience. In response, sellers have made a similar shift from focusing on quantity to a growing focus on quality, developing brand strategies and investments to serve this increasingly savvy market. They’re seeking valuable customer insights that can help them hone their branded offerings and improve everything from marketing to supply chains.

The “branding” of the internet

E-commerce started out as a vast C2C marketplace but now B2C accounts for half of all online sales, a share that is expected to grow to 70 per cent by 2020. The internet is providing easier, less expensive and more efficient access to brands. As a result, the share of branded products online increased by 7 percentage points between 2011 and 2014 to 65 per cent of total sales. Meanwhile, sales generated from overseas sites will grow annually by 30 per cent in the years ahead, reaching a total value of Rmb 1tn by 2020, as Chinese consumers look to brands outside the country that deliver higher assurances of health and safety. You can think of this transition from price to quality and experience as the “branding” of the internet.

Also contributing to this boom in branded online sales: smaller brands find themselves unrestricted by the many barriers to entry and route-to-market obstacles they often encounter in the offline world. Meanwhile, e-commerce gives top brands greater access to fast-growing lower-tier cities, where they lack physical distribution networks.

Finally, horizontal platforms such as Amazon—which sells multiple product categories—have responded to the new emphasis on brands by building closer alliances with vertical and brand-owned platforms as well as with offline retailers, which focus on a limited number of categories and typically are closer to their customers. These moves allow horizontal platforms to acquire consumer information and create more customer touchpoints via physical stores or social platforms, helping to deliver the long-promised era of Online-to-Offline (O2O) retailing.

Becoming an internet-enabled brand

Indeed, online retailers now view the internet as being more than just another sales channel for low-priced generic goods. Instead, it has become a vast opportunity for innovative, value-added services. For example, Tmall analysed the big data on apparel sales online to help the fast fashion brands on its platform plan where to locate their offline stores.

Brands are introducing equally innovative business models. Some are breaking their old patterns of indirect communication with consumers and developing creative ways of co-creating brands with them.

Schwarzkopf hair products launched FreshLight, a new hair color product, on Tmall, resulting in Rmb 4m in sales from 35,000 consumers in the first week. It then used the online sales data to adjust its offline product portfolio, planning distribution by stores and regions and negotiating contracts that are more favourable with offline wholesalers.

Red Collar Company, a leader in the customised apparel industry, provides an optimised customer experience through mass customisation, and shortens the lead-time from several months to seven days. The customisation costs only 10 per cent more than mass production but brings twice the profit. The secret lies in its sophisticated big data information system.

Winning brands view internet enablement as a transformation process that starts with a clear digital ambition and requires defining a digital operating model along the value chain (including R&D and supply chain, marketing and CRM, and sales and channel), supported by a digital organisation and infrastructure.

Rapid innovation in China is delivering the future of online retailing and brand development. Brands that speed the integration of the customer experience into their business model, who co-create with consumers and view the online and offline worlds as one long continuum will be the ones that reap profitable growth. They’ll be the brands that stand out, outpacing competitors and changing the rules in the world’s largest and most dynamic e-commerce market.

Jason Ding is a Bain & Company partner based in Beijing. Bruno Lannes and Weiwen Han are partners based in Shanghai. All are members of the firm’s Consumer Products and Retail practices.