E-commerce and the future of effectiveness

This article is part of a series of articles from the WARC Guide to e-commerce and the future of effectiveness. Read more.

At a glance

Havas Group’s latest report 'Retail Forward in China' revealed differentiation opportunities in the e-commerce sector in the context of what Chinese consumers are looking for in the promising 'new retail' formula that offers multiple benefits (product, services, and content) by combining offline stores with online technology.

Why it matters

We can expect more as e-commerce evolves into O2O, with 'new retail' playing a larger role to recoup lost COVID-19 business and loyalty. One rule in FMCG e-commerce is that 80% of your business should be created by repeat customers because the cost of acquisition for low-margin FMCG goods is too high.

Takeaways

  • Most Chinese e-commerce sites focus on delivery and discounts

  • E-commerce is more than just a convenience battle in China

  • Content is an O2O opportunity, but underperforming in China

  • Basic functions of e-commerce effectiveness: product, services, content

The COVID-19 pandemic has driven the usage of e-commerce in China to an all-time high. Already having the largest share of retail in the world, Chinese e-commerce sites have attracted even more new users in the last few months. 

Older consumers above 30 years old rose from 49% to 60%, while previously underrepresented lower-tier customers expanded from 57% to 69% in the last quarter. High performers in e-commerce like Perfect Diary, Nike and Three Squirrels boosted their year-on-year online sales on their Tmall flagships between 29%, 25% and 19% respectively in March 2020, all according to iResearch. 

E-commerce platforms are already more popular than traditional retailers in China before the coronavirus outbreak. More than 40% of Chinese consumers we surveyed stated they would not care if traditional retailers like Walmart or Carrefour were to disappear, which are against much lower figures for e-commerce platforms such as Taobao and JD (26% and 31%). The popularity of e-commerce platforms is leading to a clear slowdown of traditional retail. For department stores and hypermarkets, the closure rates are double the number of new openings, according to the 2018 and 2019 China Mainland Retail Venue Trends surveys. A similar development will be prevalent in speciality stores in the next 5 years as 80% of bookstores and 30% of clothing and shoe stores are expected to close down in China, said the China Commerce Association for General Merchandise (CCAGM).

Will there be a complete take-over by e-commerce players like Alibaba? 

Not really. Despite their demand, being ‘just online’ does not cut it with 51% of Chinese ‘prosumers’. 

Havas researched the needs of 'prosumers' – consumers who represent a group of innovators (the earliest adopters of new products and services) – and measured the needs of 'mainstream consumers', as a methodology to predict long-lasting trends that occur about 18 months from the moment of measurement. 


For this group, the concept of O2O (online to offline), or 'new retail', is the most appealing. O2O has become synonymous with China’s e-commerce environment after developing exponentially since Jack Ma categorically stated 5 years ago that there will be no pureplay online stores eventually. 

Most Chinese e-commerce sites focus on delivery and discounts

While Chinese e-commerce platforms are indeed proficient in developing retail technology and logistics, most of them are primarily focusing on delivery convenience — like Alibaba’s Hema being one of the most prominent ones. Through an intelligent operating system, Hema is able to guarantee a 30-minute delivery for its 800 SKUs selected either online or in-store, resulting in a high share of nearly 60% of the total delivery market. Another famous example is Luckin Coffee, the aggressive competitor of Starbucks that showed its combative strategy through establishing 4507 stores since October 2017, and which entered e-commerce in March 2020 with a discount store on its app and WeChat mini-program, selling a wide range of products like electronics and accessories, besides coffee-related merchandise. For Dingdong Maicai, a vegetable delivery e-commerce startup, it's a similar cycle of using price promotions and couponing to achieve conversions. 

But delivery services and pricing promotions are not enough for 79% of 'prosumers' in our 500-person sample in Shanghai, Beijing, Hubei, and Sichuan, who think these are now standard commodities in China’s e-commerce market.

E-commerce is more than just a convenience battle in China

It is no secret that Chinese consumers have become used to a comfortable, all-delivery society. 42% of 'prosumers' are “used to having everything delivered immediately that I no longer need to shop in stores”, and the sentiment has only intensified in the wake of the pandemic with consumers viewing this as essential. Compare this sentiment in China with France, where only 19% of 'prosumers' have that opinion.

Moreover, the Chinese want retailers to go further and manage all their pain points in the entire purchase journey. 


For the Chinese 'new retail' consumer, the following 5 points are the most important:

1. 'See now and buy now' feature: 96% of 'prosumers' like to be able to make instant purchases anywhere and anytime with their smartphones for anything they see, via shoppable formats. 

2. An abundance of supply: Chinese 'prosumers' have become so used to unlimited access in the e-commerce age that when they stroll into an offline environment, they are annoyed (54%) when stores run out of the item or size they want.

3. Anticipated shopping needs: 77% of 'prosumers' would like e-commerce platforms to predict their needs and proactively send goods during recurring events and occasions like birthdays and holidays.

4. Hyper-customisation based on personal data: 60% of 'prosumers' would like hyper-customized offerings available online, rather than buy mass products in big shops. In future, these should include personalised promotions, just because 67% of 'prosumers' believe that the best discounts are always found online.

5. More real advice beyond sales talk: Online shopping has allowed 'prosumers' to easily read reviews and compare brands based on objectivity and reality. This is important because trust in in-store salespeople has decreased to a disastrously low level among 97% of 'prosumers', and 96% of mainstream consumers.

Content is an O2O opportunity, but underperforming in China

Our research shows that well-appreciated content has a 72% correlation with a better perception of a retail brand. This is clearly a missed opportunity as there is a hunger for content by Chinese consumers, especially inspiring, educational and helpful content. 

Think of it this way. Chinese consumers don’t want to buy the best camera; they want to become the best photographer. 


Currently, the quality of shopping content delivered by online players in China is unsatisfactory, with 50% of content viewed as not meaningful. In particular, Chinese 'prosumers' feel that domestic brands don’t inspire or inform as international brands do, and are inclined towards DTC (direct to consumer) brands. The integration of content and commerce is a central priority for DTC brands like Ikea (content strong in both functional and pleasurable living), Nike (content strong in sports training), and Lululemon (content strong in both yoga gear and mental health). 

The Chinese equivalents of these brands are neither taking a content positioning nor beefing up their content offering, even if they excel in e-commerce sales.

Our research shows the following types of content to be most relevant for Chinese shoppers:

1. Content about learning new skills: 64% of Chinese 'prosumers' expect retailers to facilitate the learning of new skills on a variety of topics from the upbringing of children, home care, personal finance, to passion points like photography and sports. In sports, for instance, content that facilitates learning is considered to be half as important as buying reasons such as e-commerce discounts. 

Well-known examples of brands mastering these are Superdrug in the UK (highstreet drugstore brand making beauty accessible through KOLs and vloggers), Patagonia in the US (sportswear brand that creates thirst and enthusiasm for outdoor sports), Nutrilon in China (infant milk powder brand that provides child-rearing knowledge under its Nutrilon Moms Academy program), and Fotille in China (home appliances brand that offers extensive in-app cooking classes and renovation suggestions, pictured below).


2. Content about improving health: 93% would like retailers to support healthy lifestyles and stop selling products that are bad. Whole Foods in the US has become a true beacon in eating healthily and continuously proves to be best in class, and COVID-19 has accelerated this need in China as well.

3. Content about benefiting the local economy: 73% would like retailers to guarantee fair prices for local suppliers and producers.  

4. Content about promoting Chinese culture: 92% would like retailers to raise their game in cultural marketing. COVID-19 has accelerated a pre-existing trend in China driven by the post-90 generation. There are more and more activations like MAC, among other brands, who collaborated with the Palace Museum to produce limited-edition cosmetics during Chinese New Year 2020. However, all past examples are short-term ones, while no brand has claimed this territory for the long term yet.

5. Content about delivering fun and entertainment: 70% thinks entertainment is a vital need and would like retailers to become entertainment platforms within their categories. Celebrities and KOLs are currently one of the main drivers for the success of livestreaming e-commerce, and for the next 5 years, EqualOcean predicts that KOL-based e-commerce and livestreamed e-commerce will show a yearly CAGR of 35% and 12% respectively. During the 'Viya 521 Thanksgiving festival' (a festival China's top livestreamer Viya created to thank her fans), 173 products including Roewe cars (pictured below) were sold at RMB 5.21 each.


In its current form, without meaningful content, livestreaming e-commerce, while definitely fun and entertaining, is not the holy grail for sales success. The main reasons for attending livestreams, mentioned by Chinese consumers, are “instant coupons, irresistible gifts and discounts”, and these will kill your brand.

Here is an example of how a brand can deliver fun and entertainment online without relying on livestreaming and discounting. Yili's high-end ice cream brand NOC (in Chinese, it means 'happy til the end') created chuckles with Do It Yourself recipes incorporating the quintessence of the brand's humour.


6. Content about protecting the planet: 87% would approve if retailers only sell products that are good for the planet. A good example is German retailer Original Unverpackt that encourages consumers to live in a more environmentally friendly way without using disposable packaging materials.

7. Content that helps decision-making: As the Chinese e-commerce market is overloaded with both Chinese and Western brand offerings, thanks to fast-paced innovation and launches in the past few years, many Chinese consumers care about making the right choices. 87% of 'prosumers' indicated that they often wish that retailers make it easier for them to decide what product to buy. This is advantageous, especially in categories with high levels of 'decision-making stress', like men’s fashion. Mr. Porter is doing the best job in the high-end menswear category with frequent, editorial-standard, stunning layouts of its lookbooks.

Basic functions of e-commerce effectiveness: product, services, content

Since AI will aid in most online shopping in future, 90% of 'prosumers', especially the post-1995s, are looking for more added value manifested offline that crosses over to online. High expectations are awaiting brands for on-ground experiences that can be shared through social posts. Mobile and social as the main touchpoints for e-commerce marketing are already at play in Chinese daily life, but have been mostly used by advertisers to put out sales activations and other forms of short-term, performance-driven activity.

Social content has proven to be the most effective along the entire path to purchase; it has also proven to be beneficial in nurturing repeat and loyal consumers. This is critical as the cost of customer acquisition in China continues to rise due to the high inflation of media costs on e-commerce sites. When you look at social commerce sites like the Little Red Book, that is not only a nice platform to strengthen your brand for the longer term, but one that also drives conversion at the end of the funnel.

In general, the percentage of online shoppers in China using social media on the path of purchase increased from 7% in 2017 to 25% in 2019.


Furthermore, the fast pace of 5G adoption in China will drive the creation of AR and VR content on mobile and social. China will be the pioneer in 5G by the end of this year as 160 million consumers will use a 5G network, and one of the 30 5G-enabled mobile phone models newly launched by Chinese brands.

In conclusion

While ever-growing online shopping behaviour will evolve Chinese e-commerce even further, it is evident that Chinese consumers will demand better e-commerce formats that offer more than just delivery. O2O as a concept will gain momentum quickly and even leapfrog traditional players in both the offline and online space in China.


About the author

Dennis is overseeing strategy development for Havas Creative Group and Havas Media Group in Greater China. He leads the integrated strategy teams in 5 Havas Villages in the region: Shanghai, Beijing, Guangzhou, Taipei and Hong Kong. Following Havas’ Together strategy these teams work integrated for both creative and media clients. He is also responsible for the data and analytics teams.