Nowhere has the shopping experience changed in the past 15 years as much as in China. I discussed the future of smart retail in China with Ashley Dudarenok, and we touched also on the state of the economy, Chinese social commerce trends, and the importance of localisation.
Table of Contents
Introducing Ashley Dudarenok
Ashley Dudarenok is a naturalised Chinese serial entrepreneur, award-winning marketing professional and author. She’s a lady of many hats & talents having both a marketing agency and consultancy based in Hong Kong.
As part of those challenging roles, Ashley works closely with Chinese tech giants such as Alibaba, Tencent or Huawei on building the future of retail and digital ecosystems. She then helps companies outside of China learn from those lessons so they can apply them in their own countries and organisations.
Ashley has been named a LinkedIn Top Voice in Marketing, “Guru on Digital Marketing and Fast-evolving Trends in China” by Thinkers50 and one of the World’s Top 30 Internet Marketers by Global Gurus.
She’s also a sought after professional speaker and the author of 10 bestselling books on digital China, with the latest, Innovation Factory, being released in September 2019.
(That is an affiliate link so if you should buy anything through that link, I may earn a small amount at no additional cost to you).
Ashley had a fairly international upbringing, culminating with her studying in Chongqing, China, before landing in Hong Kong after uni. Her corporate job wasn’t fulfilling, leaving her rather bored and that’s how she came to start a company.
It wasn’t until she engaged more actively with sharing her thoughts publicly though that she began to gain real traction and built the community of “China watchers” that she has today.
Is China on the verge of a catastrophic recession?
This is the elephant in the room… In recent months European and US media have been full of reports about China’s economic situation with forecasts of a recession that could tip the world into a downward spiral.
Whilst it’s true that China is experiencing a slow down unprecedented for the past 40 years, that’s not the same as a full on depression. In fact, China’s GDP growth is expected to be around 4.85% this year and between 3.5% to 5% in the next few years. That’s a far cry from the double digit growth that China was used to in the past, but still a rate that most European countries would be more than happy with.
In the past decades the Chinese population had become accustomed to expecting their lives to always improve in the future, and that their children would also have a better life than they did. Now, that optimism has been shaken. As the market matures, then firstly double digit growth becomes ever less likely as the base level is so much higher & secondly China is moving into a place of economic cycles such as those expected in other parts of the world.
Yes, the property market represents a significant risk and is experiencing a downturn – European media have also reported extensively on the woes of companies such as Evergrande or Country Garden. There is also pressure on industrial activity & high youth unemployment combined with the government tech crackdowns.
However, traditionally Chinese families are savers and most have money put aside in preparation for difficult times. Also the growth rate in manufacturing is actually higher than the pre-pandemic levels.
China’s market is evolving into a more mature and high-salary market
China is certainly facing significant structural issues, including an aging society. The birth rate this year is likely to be at a record low of around 7mn (perhaps even lower), and despite the government’s best efforts that’s unlikely to pick up for a couple of years.
China is implementing measures such as tax reductions and debt swaps to address these issues, however these are not overnight solutions and take time to have the desired impact.
In the mean time, China’s growth will slow down, but it remains one of the biggest consumer markets in the world.
Chinese consumers are still interested in both domestic and international products, and the market is tech-savvy & open to new ideas, meaning the market will continue to see innovation and technological advancements.
Social Commerce has often been lauded as the Future of Smart Retail in China
The most obvious face of social commerce in China are the ubiquitous live-streams which for outsiders seem like a more modern form of telesales. These started almost 10 years ago now on Taobao but only gained in popularity a few years later.
Live streaming commerce is ultimately about connecting, entertaining, educating, and selling, and it’s the real time connection with the community which has made it so attractive for millions of Chinese consumers. This idea of entertaining and educating whilst at the same time selling has gained hugely in popularity and was especially boosted by the pandemic.
It’s important to understand though, that although the market share of traditional e-commerce is shrinking, while live streaming commerce is growing, traditional e-commerce still makes up the majority of the GMV (=gross merchandise value). In 2021 platforms such as Taobao, Tmall and Jingdong made up around 83% of GMV and sales through live streaming had a share of around 14%. (The rest came from business models such as direct to customer (D2C) or group buying). By 2022 the live-streaming share grew to 20% with the strict lockdowns experienced and that will grow still further (although not indefinitely) in the next couple of years.
GMV – or gross merchandise value is the list price value of the goods sold. When Chinese platforms talk about results on campaigns and festivals then they talk always about GMV. This doesn’t tell you anything about the actually turnover achieved as all manner of discounts, coupons and returns still have to be calculated. Therefore, it’s one of the most worthless metrics out there
Traditional platforms will still continue to exist alongside live-streams, however this kind of social commerce offers a unique opportunity for brands and influencers.
Live-Streams are not the only form of social commerce in China
it’s also about live chat when you speak and complete the whole conversation (we call it conversational commerce) where you’re chatting with someone either through a call or through a chat bot and they guide you about the best product for you. You then complete the whole transaction online
It is through also your existing CRM channels – eg. back in 2011/2012 I was already working with a CRM system in China where we could track every can of infant formula through the whole supply chain within the country, and the mother’s had a loyalty scheme if they scanned the code on the package. The levels of support and information shared were unbelievable by European standards but were quite normal & acceptable for Chinese mums. This needed a huge team at that time to run it though – to call every mum regularly and check how satisfied she was with the products. That level of tracking and personalisation can often seem “too much” for Western marketers.
Social commerce is only going to become more and more powerful and is part of the larger digital transformation taking place right now. Of course in countries like China where they’re already used to digital, they’re already used to working with mobile first, they are already used to community group buying & live streaming and they have the platforms, the online wallets and the mindset. For them of course this transformation is just faster and probably stronger, but it is going to come one way or another to the rest of the world too in some shape and form, just not exactly like in China.
Virtual Live Streamers will have a role to play in the future of smart retail in China
In the future, virtual live streamers such as the anime character Luo Tianyi, or hyper realistic Ayayi, will sell many products and provide personalised assistance.
As you can see, such virtual live streamers already exist and of course can represent brands 24/7 – brands can even design their own who is guaranteed to always toe the brand line. Right now, there are assistance bots in many Chinese banks who can talk to customers and guide them on basic products, answering any questions. In the future we can expect to see more categories being sold by virtual live streamers, who’ll be able to tailor offers and have conversations with consumers.
This kind of assistance for brands and consumers will be available 24/7 making it cheaper than now, where brands need huge customer service teams.
Until now one of the main challenges when working with big KOLs (key opinion leaders) is that personal behaviour and what constitutes “a scandal” are judged more conservatively than in European markets. So against that background, some brands may opt to work more with virtual influencers as they can’t bring you so easily into disrepute.
On the other hand though, humans love to pick at the lives of others so the chances are that real human beings will still be preferred over virtual celebrities for continued engagement and gossip. Let’s be realistic, people participate in social selling and live streams to have the opportunity to interact and chat with their idols – it’s not primarily about the brand or product. It’s to be SOCIAL.
Scarcity Product Strategy
Brands often create limited editions of products to create exclusivity – we know this from around the world, however in China the effect is even stronger. The limited edition strategy is to produce a small quantity of products to create the perception of scarcity and therefore exclusivity.
This strategy has been successful in China for many years, where there is a strong fan economy and people are willing to buy products endorsed by their favourite idols. It’s not just for limited editions though: keeping stocks of the regular products at a minimum can also drive demand, but it’s a fine line you need to tread. If the availability is too low, it will drive parallel imports, potentially bringing chaos to your other markets where shelves may now be empty, but also to China where there may be differences in formulations, packaging and pricing policies.
Don’t assume that because China is big, that it’s easy
Not every company is ready for China as the Chinese market is difficult and expensive for brands to enter. Of course the sheer scale of China attracts many brands, but they may be underestimating what it takes to be successful.
In most product categories the Chinese market is a complete red ocean of competitors, meaning you really need to be very well prepared in terms of strategy and resources. It’s quite possible to sell what seems like a large volume of products for you (just a drop in the ocean for China) but still make a loss because you had such high costs with advertising, influencer for live streaming and discounts during the live stream.
Some tips for when you’re planning your future Chinese marketing budgets:
- Really know your customers
Companies should invest in understanding consumers and choosing the right platforms to connect with them. Don’t treat China like one country but think of it more like the US where there are many states and regions with their own identities and trends.
Understanding the consumer journey is crucial, as it involves numerous touchpoints both online and offline – definitely more than you are used to in your home market. - Move away from a “globalised” thought process to a more local one
As I mentioned above, there’s a trend to more localised and regionalised approaches. Be prepared to use a different approach for Chengdu to the one you devised for Shanghai. Trends and realities vary between regions and even within brands when you look across the whole of China. Focusing on smaller communities and depth rather than a wide approach can lead to progress.
…so if you are a small player you don’t need to be everywhere at once – start by focusing on a couple of regions and also niche markets in China for expansion. You also should remember that in China consumer generations are often divided every 5 years even, not in decades so activities can be extremely differentiated. - Follow the consumer trends when investing your marketing budgets
Brands need to understand and react to trends and realities in order to become more localised. This is a point where foreign brands often struggle to keep up with the pace of change in China, however as a smaller brand, you may be able to leverage your relative agility here to your advantage. You need to recognise that localisation is challenging for both large and small brands. - Choose the right metrics and calculate the ROI of activities
As mentioned above, GMV is not an accurate measure of success – you need to really do the maths and work out what promotions and campaigns are costing you and what you can afford to invest. Many companies underestimate the level of resources needed for promotions and discounts so you need to make sure you calculate everything up front of any decisions. - Conversational commerce is a big trend.
Consumers want connection, and want to have personalised advice so finding a way to offer that in a cost effective way will help you win in social commerce in China - Don’t ignore the offline world
Not everything will go online post-pandemic; offline experiences and personal connections are still important.
How is the Double 11 Singles Day Festival Evolving?
The Double 11 shopping festival has evolved over the past couple of years from a GMV record extravaganza, combined with the deepest discounts of the whole year to a more established event. Instead of being a 1 day discount frenzy, it’s evolved into a month of activities and the focus has moved away from those extreme discounts.
Partly because brands were no longer willing to do up to half of their annual turnover on Alibaba on that 1 day and that at a loss, but also due to the way the whole market has evolved.
Now that live streaming is such a huge part of the Chinese retail ecosystem, there’s no need for consumers to wait all year for the 11th November because they can achieve the best discounts all year round. So the Singles Day festival is becoming more of a cultural landmark where companies individually reinterpret the meaning and participate on their own terms.
For many years now it’s no longer been a purely Alibaba phenomenon but has extended to all the platforms and also many offline retail outlets. The last couple of years have felt a little bit of a damp squib with the evolution to more of a launching and branding event not yet complete, however this year could be once again more of a highlight, even though it’s no longer as significant as in the early years.
It’s still a “must be there” event for brands though for launching new products and participating in new platform features.
The Future of Smart Retail in China is Exciting
Whilst it’s hard to say exactly where things are headed then it’s safe to forecast that it will be a fast paced, exciting ride!
As ever, there will be pros and cons for the brands as well as platforms, influencers and consumers making it challenging to decide what is the best way for your company to participate. China is and will remain a complicated market that requires a lot of involvement and time commitment.
It’s reasonable to assume that social commerce in its many forms will play an increasingly important role so you need to decide what is the best way for you to be part of this. Make sure that in whichever way you are involved in China, you really do the groundwork and calculate the benefits, whilst at the same time accepting that decisions have to be made fast or the opportunity lost forever.
AI, the Metaverse, virtual assistants (in the virtual sense of the word!) etc will be firmly anchored into the Chinese retail ecosystem and if you want to have a chance of benefiting from this huge market then you need to learn and be prepared to play by Chinese rules of engagement.
Full Video
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Kathryn firmly believes that business is done between people, and therefore places her focus on building strong relationships that form a solid foundation for doing business.
When she's not travelling around the world, Kathryn enjoys playing clarinet in her town's wind orchestra or sharing her love of the outdoors with her Scout group.