China is on the radar for many of our members. With a combined population of 55.5 million in Tier 1 cities alone, it’s no wonder that retailers are keen to take a slice of that Mooncake for themselves. But it is not an easy journey.
We recently brought together a group of retail leaders with a shared goal to find out more about how to achieve success in the World’s fourth largest country. The discussion cycled through ambitions and frustrations, to which channels to choose and how to build brand awareness; finishing up with how to tie it all together to achieve that so desperately sought-after omnichannel customer experience.
Key challenges retailers are facing when entering China
Although some brands have been in China for several years, their strategy to date has not worked as well as they’d hoped. They started with a small team in the region working with a handful of dealers and retail partners, which they grew after a year or two, but even with more feet on the ground their China business still never managed to turn a profit.
Another strategy they had was to use UK based firm which claimed to enable British brands to access the Chinese e-commerce market. They started selling via a WeChat store, utilising resources to then ship products from the UK to the end consumer. They found the service to be, whilst relatively cheap, a logistical nightmare! To add to their pains, through this method, they only managed to make two sales in six months.
Unfortunately for anyone looking to sell to Chinese consumers, whilst there are huge numbers across China, it is imperative to look at where the demand is and how brands can generate demand for their own products. Companies that are successful in the region must go through a huge amount of groundwork in brand building and channel planning, and invest in the right areas, before they launch.
The slippery slope to discounting
From one perspective, Tmall and other marketplaces are a good way to promote products and boost sales, especially for brands with limited brand presence in China, but the long-lasting effect on your brand can be devastating as, if you start doing it, there’s generally no way back.
The problem for premium brands however is that historically, they do not discount. But not being present in occasions such as Black Friday or 11.11 is not really an option these days where customer research shows that these festivals are exactly where customers are planning to spend their money. As a result, one member shared how they plan on participating in 11.11 with balance – having guardrails up in terms of the maximum discounts they’re prepared to offer, but also being very consistent about the kind of products that they will allow discounts on. They shared that it is obviously tempting to put the latest and greatest products out there, as these are the ones that drive the highest volumes, but this is also a dangerous strategy as if the discount remains always visible, they are unlikely to ever be able to get a customer to purchase at full price again. By limiting discounts to those products at the end of their lifecycle, or those that have already been on the market for a while is a good strategy to enable participation whilst not cannibalising your profits.
Brand building and mechanisms for driving greater customer understanding
The problem lies in collecting enough customer data to gain a full picture, which will ultimately lead to better tailored messaging and improved brand awareness.
One member shared how they’re working toward building a full customer view by setting up a marketing team in China. The Shanghai based marketing managers have been tasked with engaging an agency to drive customer insight campaigns, enabling them to draw a better picture of who their customer is and how they like to engage with the brand. With a highly sought-after brand which usually sells via word-of-mouth, and is already regarded as a status symbol China, they initially thought they could gain sales simply by pushing their product with their partners in the market, but they’ve quickly realised that this is not the case. Now they are focusing on driving their customers to register on their own website to fuel their database. This member believes that having a marketing team set up in the region has been an instrumental help in achieving their goals, but they do concede that they’re still only really at the start of that journey and that they still have a lot more to learn.
When it comes to customer expectations around delivery times, Chinese consumers expect a fast service. Most Chinese brands will offer a service which fulfils delivery within 24 hours, offers free returns and 24/7 customer service. A lot of British brands trying to sell on Tmall are operating a cross-border delivery service from the UK. Brands need to compare this to the delivery times of a Chinese competitor and ensure that their brand presence and offering can really cut through and ensure consumers are willing to wait, and then delivering on your brand promise! Getting the logistics right is a big part of brand building.
Choosing the right geographical location to launch a product is critical. Chinese consumers live all over the country, yet most retailers opt to focus only on Tier 1 cities – where the majority of the competition already is. For example, Alibaba realised 5 years ago that they needed to make a play for Tier 2 and 3 cities, because the majority of the Chinese population was not based in Shanghai, Beijing and Guanghua.
Closing advice and top tips:
China is a learning experience for everyone. The three key areas of focus identified by the group are:
Regardless of who you’re working with (Tmall, WeChat etc), it is imperative that you have someone who will fight for your brand to be represented in right way for China. That means localising – but in an appropriate manner that’s core to your DNA and brand values. This is particularly important for Heritage brands. Getting the message right at the outset so that it lands in the right way is what will drive long term success.
Secondly; the channel mix.
Whilst this looks different for every brand, making sure that you use the right channels for your business will all stem from having an understanding of your target customer. Choosing the right channels will determine how your customers hear about your brand and where they can buy it from. Demographics in China are very widely varied. Building a digital ecosystem which is relevant to that consumer will help you to decide whether you use a WeChat Mini Program, Tmall, or something else entirely.
Thirdly; user experience.
In China, customer service is part of 80% of transactions, before the customer makes the purchase. These customers want to be sold to, and they want the comfort of being able to ask as many questions as necessary before making the purchase. To achieve this, brands need to engage customers through the right channels, whilst simultaneously supporting ongoing communications across channels to remove any friction for the customer. Utilising an end-to-end CRM capability can support this and is critical to ensure a long-term view of how customers engage with the brand. Having this set up from the outset is crucial to success.