Commerce in China Part 1 – ‘Gotta Have Trust’
By KristineVallila on Jul 16, 2013
I have China on the brain. No, not because of last night’s dinner.
As I put the final touches on the presentations for Oracle Open World in Shanghai (July 22-25 at the Shanghai Expo Center), I cannot help but start to piece together themes for this amazing market. Through the conversations about online retail in the region and discussions on challenges and opportunities, one unique theme jumps out: Trust.
Each geographic market has its own spirit-of-the moment, the table-stakes expected by a customer. In China today, this focus on experience translates to trust. Can I trust the site? Will my payment go through? Will my goods arrive on time?
In the first part of my blog post on China, I’ll write about the unique Chinese market that makes the relationship between transacting through digital channels and gaining consumer trust particularly important. Subsequent topics in the series will be: China – the ultimate mobile consumer, and observations from Oracle Open World Shanghai.
As one analyzing the market, the first obvious question is: why this focus on trust?
Operational Difficulties: The relationship between merchants and customers suffers from difficulty with the existing supply chain. Fulfillment processes downstream from an online purchase are imperfect and it is difficult for merchants to ensure that the goods will get to the customer.
In major cities, merchants are playing with different pick-up points to get goods to a customer without having to commit to door to door delivery. As opposed to the beautiful 6-digit alpha-numeric postal grid in the UK, or the 5-digit postal code in the US that serves as a reliable signifier of location and address, China faces a challenge due to its massive population. Though there is a standard for postal addresses in China (Largest unit first Ex: Country, Postal Code, Province, City, District, Street Name or Road Name with Street Number or Road Number, Building Name or Number, Room Number, Recipient), China has over 40 cities with a population exceeding 1 million people. Add to this scale of population the logistical challenges of navigating a city and you have a demanding landscape for home delivery.
In 2nd and 3rd tier Chinese cities where a growing middle class would want to access middle and high-end goods not sold locally, the challenge is double. Companies such as FedEx and UPS, that online providers trust, are only available in the largest cities, leaving merchants to rely on bike couriers to deliver goods. In many areas, these courier services are limited to daylight hours due to a concern of being stopped en-route to be robbed for the goods they are carrying or the cash they have received. As context: a luxury item such as a Louis Vuitton handbag (940 USD) representing half a year’s salary for a bike courier (Minimum wage: 870 RMB ($138) per month in Jiangxi Province to 1,500 RMB ($238) per month in Shenzhen,). It is easy to understand some concerns about delivery.
Companies delivering goods are also concerned about proof of delivery. Customers have been known to accept the delivery of goods and subsequently claim goods were not received and request a replacement or refund. As a result, merchants have put in place signature upon delivery and in some cases – photo upon delivery – as proof the product was delivered to the customer.
Consumers want to trust before they buy: because of these operational complexities, potential online customers are highly focused on trusting the sites from which they purchase online. Given the difficulty navigating the city to acquire goods and the high cost of travel, online channels are an attractive way to purchase.
Once a Chinese consumer shops online successfully (and overcomes the initial skepticism) they shop very frequently – more frequently than their European and North American counterparts. PwC says that 58% of Chinese consumers shop online once a week compared to 42% in the US, 41% in the UK, 29% in Germany and 13% in France (Source: E-Commerce Soars in China).
Some of the elements of a mobile or online customer purchasing experience that translate to trust:
- Proof of purchase: a Chinese consumer will want an invoice as proof that they have made a purchase online.
- Safe and proven payment methods: In China, it is not popular for shoppers to store their credit card number online. Instead, Chinese consumers favor punch-out payments via 3rd party payment gateway integration such as AliPay, UnionPay, TenPay, etc. These are the Chinese equivalents of what EMEA and North American consumers know as PayPal.
- Cash on delivery: Another popular payment method is cash on delivery – putting the risk with the merchant and courier service to collect funds.
- Delivery time: Again, because of the difficulty in getting goods to the front door, consumers have a concern about receiving the goods. Merchants as well, want assurance that the goods delivered were received. We have heard of merchants going so far as to require a signature and a picture as proof of delivery.
- Authenticity of goods: Because of the general focus on trust, online consumers want to get as close as possible to a product through their web and mobile channels. They want to make sure they are getting quality and authentic goods. That means picture magnification and video are popular features.
- Product rating and review: As part of the validation of quality and authenticity, Chinese consumers want to interrogate their peers by reading ratings and reviews. Even better if they can sort, refine and compare products based on those reviews. In their report on China’s Internet Obsession, McKinsey & Company cited Chinese consumers as highly influenced by online product reviews stating that “One in five consumers between the ages of 18 and 44 won’t purchase a product or service without first researching it on the Internet.” (Source: McKinsey &Co, China's Internet Obsession)
- Getting the best deal - Seckill: Chinese consumers are definitely bargain-seekers. And with merchandisers currently vying for market share by waging price wars against each other, customers are well served. A term: “Seckill” has been coined related to this deal-hunting. “Seckill” is a combination of the word ‘second’ and ‘kill’ – aka you kill a deal in a second. Originally an online gaming term, the concept now applies to online shopping. It refers to quick sell out of goods tagged at very low prices. Merchants must be able to present these types of promotions and also be able to handle the Chinese-scale traffic that surges onto a site.
- Social: Social networks are critical to a Chinese consumer and the local market has a number of uniquely-Chinese platforms: Renren.com (comparable to facebook), Sina Wiebo (comparable to Twitter), and QC instant messaging. These are all key social integrations for online commerce in China. If my peers purchase and like an item, I am more likely to like it as well.
We suspect that the evolution of the Chinese consumer’s requirements for online commerce will mirror that of Maslow’s hierarchy of needs. Once consumers are comfortable with the safety of transactions, they will demand service and customer experience that answers a different question: Do you recognize me? Did I enjoy this experience? Do I want to return to buy again? Can I buy on the go?
More to come in the China series after Oracle Open World Shanghai.