Executive Summary
- Online shopping is getting more popular on the Chinese mainland, especially among unmarried middle-class consumers aged 20-44. A Hong Kong Trade Development Council (HKTDC) survey found that over 40% of the respondents have an online shopping habit. In a bid to expand the consumer market, the Chinese government is also supportive of the development of online business, targeting to raise the percentage of online sales in the total retail sales of consumer goods from below 2% presently to over 5% in 2015.
- Unlike a physical store which has limitations in its geographical reach and shop size, an online shop can display all its merchandise on the website for sale to consumers across the country. Indeed, despite the financial tsunami, the average order value for mainland shoppers has increased by 7.2% compared to the pre-crisis period, showing that online shopping is fast catching on among mainland consumers. Hong Kong companies can consider using this platform to break into the mainland retail market.
- A Hong Kong company can choose to launch its own website, open an online shop on a third-party platform or partner with a website distributor. Sizeable third-party platforms provide warehousing, goods delivery and electronic payment services, while some website distributors even offer value-added services such as customer management and feedback collection. Based on their own needs and development strategy, Hong Kong companies can select suitable website partners to help them penetrate this market.
- In view of the low entry threshold and keen competition, it is important that online shops build good reputation and “word-of-mouth”. Since 30% of mainland netizens learn about a shopping website from the internet, online shops can pay for “recommended positions”, “keyword advertising”, “friendly links” or “promotional links” to enhance their listing at search engines to capture consumers’ attention.
- Mainland consumers seek after trendy products with good quality and unique design. With years of external trade experience, Hong Kong companies offer items with guaranteed quality and design, which should be welcomed by mainland consumers. Yet, appropriate adaptations should be made to these products to address mainland consumers’ specific needs. Competing against an extremely wide array of product choices and bearing in mind mainland consumers’ attention to the performance-price ratio, Hong Kong companies should enhance their niche by launching new products regularly and offering items in a wide selection of designs, sizes and colours at competitive prices.
1. Development of Online Shopping on the Mainland
More and more mainland consumers now go online to shop or for entertainment, thanks to the proliferation of B2C (business-to-consumer) shopping websites, availability of a wider choice of products online, improved goods delivery system and enhanced security for electronic payment. Up to June 2009, mainland internet users topped 338 million, representing a penetration rate of 25.5%[1], surpassing the world average of 23.8%. Among these internet users, 26% (87.88 million) shop online.[2] In an HKTDC survey, over 40% of unmarried middle-class consumers aged 20-44 have an online shopping habit.[3]
According to the Statistical Report on Internet Development in China, the transaction volume of online shopping posted a staggering average annual growth of 86.4% from 2005 to 2008. In 2008, online shopping amounted to Rmb125 billion, making up 1.15% of the total retail sales of consumer goods. Yet, compared to countries such as the US (4%) or South Korea (10%)[4] where internet networks are better developed, China’s 1.15% ratio is still on the low side. To promote e-commerce development, the Ministry of Commerce (MOFCOM) promulgated at the end of 2009 the Opinions on Accelerating the Development of E-Commerce in the Circulation Sector (Shangshangmaofa No.540 [2009]), setting a target to raise the percentage of online sales in the total retail sales of consumer goods to over 5% by 2015. Assistance will be rendered to small and medium-sized enterprises (SMEs) in the circulation sector to make use of third-party platforms to upgrade online sales technology and management levels, reduce operating costs in product display, personnel, warehousing and capital utilisation, and select a flexible model in developing online sales business.
More and more mainland consumers now favour shopping online, and the financial tsunami has not dampened their shopping desire. According to some surveys, the average order value for mainland shoppers increased by 7.2% from US$152 in October-December 2008 to US$163 in March-May 2009[5]. To the consumers, online shopping offers “flexibility and convenience” in that they can anytime, anywhere search for products of various brands and different countries, compare prices and do the actual buying. It appeals particularly to the young and busy white-collar consumers who enjoy shopping round the clock.
With mainland B2C online sales networks getting more developed, Hong Kong companies can consider entering the mainland retail market through the online platform. Without the limitation of a physical store in geographical reach and shop size, an online shop has the advantage of displaying all its products on the website for selection by consumers across the country.
2. Characteristics of Online Shoppers
2.1 Online shopping most favoured by young females
According to the Statistical Report on Internet Development in China, at the end of September 2009, the proportion of male and female netizens (53:47) was similar. However, the ratio of female as opposed to male online shoppers was higher (62:38), reflecting female consumers’ greater liking for shopping. Over 85% of online shoppers are young people aged below 30. The number of online purchases also increases with the netizens’ “web surfing age” and education level.
2.2 Finding products by search engines
Mainland netizens often browse through a number of websites to look for products to buy, and a majority of them use search engines including generic search engines (27.1%) and search engines within shopping websites (20.6%), while some also surf shopping websites’ homepage (23.6%). Hence, to increase click rates from target buyers and the chances for securing a deal, it is important to draw up clear categorisation and precise description for products. Take the case of an online shop selling laser pens as an example. If only the word “pen” is used as a search keyword, high click rates are likely to be recorded, yet visitors may not be the target buyers as they may well be looking for colour pencils, pencils or Chinese writing brushes.
2.3 Visiting a physical store before making an online purchase
Generally speaking, standardised products such as computer hardware or books are better suited for online sales, as consumers can ascertain their functions and quality through their model number and description. However, on the mainland, personalised products such as garment and household decorative items are instead most popular online.
Unlike generic products, consumers often find it difficult to decide on buying a personalised product by merely reading its online product description. Online shoppers looking for garment and footwear hence often visit a physical store to get a better feel of the products including their quality and size, before buying them online at a relatively lower price. In case where these products are not available in a physical store, some garment and footwear online shops will arrange for consumers to purchase and fit out the products first. If the products are found unsuitable, they can be returned to the shops for refund or exchange. Some online shoppers have expressed that as the number of garment and footwear physical stores and choices of merchandise on the mainland are enormous, it is too time-consuming for them to visit one shop after another for their favourite items. Search engines on the internet, on the other hand, help them locate their desired products quickly and easily.
Similarly, online household decorative items shops offer much lower prices than physical stores, and consumers often visit a physical store first before making an online purchase.
[1] The 24th Statistical Report on Internet Development in China
[2] Statistics in June 2009 are from the China Internet Network Information Center (CNNIC), representing a rise of 39% from June 2008. CNNIC is a state-approved management and servicing organisation acting as the state network information centre of China.
[3] Middle-Class Consumers in China, HKTDC, 2009
[4] Source: Central People’s Government of the People’s Republic of China at www.gov.cn/jrzg/2009-12/09/content_1483169.htm (in Chinese)
[5] Source: Online shopping surveys conducted by Coremetrics, an internet marketing and business optimisation service provider
