The following report is the second in a series entitled “The New Retail: Lessons from China for the West” produced as a collaboration between Alibaba Group and Boston Consulting Group. To read the first installment, click here.
By Chris Biggs, Amee Chande, Liyan Chen, Erica Matthews, Pierre Mercier, Angela Wang, and Linda Zou
Much has been written about the move online by Chinese consumers and the country’s explosive growth in ecommerce. Less well understood is how Chinese shoppers use the internet—and how their buying experience differs from that of consumers in other markets.
In the West, ecommerce originally emerged as a more efficient way to shop. Today, consumers still go online to shop because it is often easier, faster, and more convenient than going to a store. Many ecommerce players optimize their platforms for efficiency by building search functions, payment features, and delivery capabilities. They want customers to shop frequently and quickly.
In contrast, ecommerce in China has been about providing a richer alternative to traditional shopping. Consumers like to spend time in a discovery-driven online world of energetic chaos where shopping is an adventure. Ecommerce players optimize their platforms for customer engagement, blurring the lines between entertainment and ecommerce as well as between online and offline commerce. Shopping is a social experience, not a solitary one. The Chinese consumer’s unique path from prepurchase to purchase holds valuable lessons for retailers in the West.
This article, the second in a series on the new retail concept, explores the differences between the buying experience of Western and Chinese consumers and provides a window into what may be the future of shopping.
Because online shopping is often optimized for efficiency in the West, customer behavior in the prepurchase phase is mostly about searching. Consumers typically go to an online retailer, such as Amazon, or a company’s website with a specific item in mind. Category details—such as product, style, color, and size—help buyers drill down and narrow their search. The payment page is automatically filled with personal details to speed the transaction. Mission accomplished! The online shopping experience is fast, smooth, and easy. (Click on the graphic below to enlarge.)
In China, the typical consumer behaves very differently. Instead of searching for specific items online in the prepurchase phase, Chinese consumers embark on a journey of exploration and discovery—as if they are going to the mall with friends or family. Chinese consumers go online to see what’s new or what’s trending, sometimes many times a day. This is partly because of the highly personalized and rapidly changing nature of the online shopping experience, which not only enables product discovery but also helps consumers make lifestyle choices.
Online merchants in the US offer product suggestions on the basis of a consumer’s searches or buying history. Marketplaces such as Alibaba’s Taobao in China use such data as well, but they also capture other types, such as social interaction and location data, and employ analytics, artificial intelligence, and personalization. The result is a curated shopping experience achieved by few—if any—companies in the US or Europe. Everything consumers see on their screen is customized and updated in real time. Suggestions—whether for promotions or new brands or content—tend to be spot-on, even those that are for items consumers didn’t know they wanted or needed. Such experiences drive exceptionally high click- and follow-through rates, as well as longer online visits.
China’s shoppers rarely make an online store their destination. In addition to receiving suggestions from an online marketplace, Chinese consumers discover new brands and products through an array of digital channels and content. For instance, they may see an item they like on social media, in a music video, in an online fashion show, in a makeup tutorial, or on a news site.
China’s integrated digital platforms enable this content-led discovery. Even though many of the engaging online channels are not overtly related to shopping, if Chinese consumers see something they like, they can buy it immediately through embedded purchase links. As a result, the path from discovery to purchase is seamless. These instant “buy what you see” opportunities take product placement and ease of purchasing to the next level—one not yet seen in Western markets. In the US, when consumers see something they like on Pinterest, Facebook, or WhatsApp, they usually have to exit the app to search for the product and buy it. China’s version of Pinterest, Xiaohongshu, is an ecommerce site where consumers can buy what they see right there. In other words, in China, discovery and purchasing are integrated, whereas in the West, they are separate.
Like consumers in the West, China’s consumers go online to be entertained, to educate themselves, and to share with friends on social media. The important difference is that in China, buying opportunities are woven seamlessly into these activities. Merchants partner with content providers and key opinion leaders, such as celebrities and experts, to create innovative, engaging online experiences that generate buzz, draw in consumers, and lead to sales through embedded purchase links. Although some companies in the West have experimented with content-driven discovery, it is not yet commonplace. In contrast, as the following examples show, China’s digital environment is rife with experimentation:
In China, market influence is an ongoing, two-way street, driven by merchants and consumers alike. New concepts created by brands and merchants attract consumers’ attention and curiosity, which then inspire another cycle of innovation and discovery.
As the examples above make clear, merchants and brands in China are moving toward an integrated omnichannel retail model that capitalizes on the strengths of online and offline commerce, delivering a seamless, compelling customer experience. In this new world, discovery is ongoing, all the time—online, offline, and across all channels. We already see some examples of this in the West with the AmazonFresh click-and-collect model and the Starbucks loyalty app. Ultimately the distinction between online and offline commerce will disappear.
This future is coming faster to China than to the West. In the West, the prepurchase, purchase, and postpurchase phases of the consumer journey are segmented across channels and online platforms. This lack of integration drives the transactional nature of ecommerce activity. In China, the phases of the purchase journey are much more integrated, so the online and offline experiences are more seamless.
This online-offline integration is blurring the distinction among channels. It’s happening more quickly in China for two reasons: ecommerce technology is more advanced, and physical retail is less developed, so there’s a smaller base of legacy stores to protect. There are several signs of this new future:
In this integrated future, merchants and brands will make business and merchandising decisions in response to how consumers react to and behave across all channels. (See “Understanding Chinese Consumers.”)
With strong growth of consumer spending projected in China over the next five years, global retailers are taking notice. But who’s doing most of the buying? The typical Chinese consumers are young, live in urban areas, are part of the growing middle class, and save less than their parents or grandparents despite earning a sizable income. Although China’s economic growth is slowing, these consumers are optimistic that their earnings and standard of living will increase over time. And as their income rises, they buy more premium products, trading up to healthier food and pricier cosmetics.
Although more brand aware than consumers in the West, Chinese consumers are not necessarily brand loyal. With the exception of luxury goods, loyalty to global brands is waning. In fact, these consumers are open to new products and brands—especially those that engage them with innovative offerings and the creative use of multimedia.
The typical Chinese consumers do more than half of their online shopping using a mobile phone, increasing the likelihood of shopping at all times, whether on the bus, in an elevator, or at work. By contrast, Western consumers typically spend two-thirds of their day on laptops and only one-third on a mobile device.
Online merchants and brands that build effective discovery-driven consumer journeys are more likely to deepen consumer engagement and generate higher sales volume. Although some Western companies are beginning to move in this direction, their Chinese counterparts tend to be far more advanced. To increase the discovery aspects of their online experience, retailers should consider the following questions:
Making this shift toward a more discovery-led consumer journey requires a deep evolution in a company’s operating model and capabilities. We’ll address these changes in the next article in our series.