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China’s Online Youth

Most online transaction platforms on the Chinese mainland adopt a third-party pay system to protect  

Most online transaction platforms
on the Chinese mainland adopt
a third-party pay system to protect buyer and seller interests
(photo: EyePress)

 
The Chinese mainland’s Internet population hit 485 million last June, with a penetration rate of 36.2 per cent, higher than the world average of just over 30.2 per cent. So it’s no understatement to say that the online world has captivated the nation. 

Specifically, it’s captivating the country’s young people, who are more inclined to buy goods in cyberspace. Last year, about 160 million mainlanders shopped online, with 65.9 per cent aged between 18 and 30. 

They are particularly keen on purchasing fashion items, including clothes and fashion accessories partly because of the availability of a large range of designs on the Internet. 

Online shops also generally offer lower prices than physical stores. For younger shoppers, the main attractions are convenience, bargain prices and a huge selection. An increasing number of online shopping platforms and improvements in distribution services and e-payment security are also contributing to sales. 

But it’s still early days. Online transactions topped Rmb523.1 billion in value last year, growing 109.2 per cent over 2009. Yet, 62.1 per cent of all online shoppers spent less than Rmb300 on average per month. 

Online transactions actually accounted for just 3.4 per cent in total 2010 retail sales, even though the figure represents a big jump from 0.4 per cent in 2006. But plans are afoot to further boost online shopping over the period of the 12th Five-Year Programme. The Ministry of Commerce aims to increase the share of online transactions to more than five per cent by 2015. 

Online Sales Models  

  Capturing e-marketing channel  and search engines is the key to the success of online businesses
 

Capturing e-marketing channel
and search engines is the key to the success of online businesses (photo: EyePress)

In the business-to-consumer (B2C) sales model, an enterprise can set up its own online shop to sell goods directly to consumers or deal with them through a service provider operating a third-party transaction platform. 

The top four of the mainland’s 30 biggest B2C websites in 2010 were all third-party platforms offering a comprehensive range of merchandise. These top malls are enshrined in the lexicon of mainland online shoppers: tmall.com, 360Buy, Joyo Amazon and dangdang.com.

Number one operator, tmall.com, boasts an annual turnover of Rmb30 billion, while the fifth-largest operator, VANCL, is a self-run online shop specialising in fashion and clothing, with an annual sales volume of Rmb1.9 billion. 

Other self-run online shops with an annual turnover in excess of Rmb100 million include redbaby.com.cn, suning.com and gome.com.cn. 

Most online transaction platforms adopt a third-party payment system to protect the interests of both sellers and buyers. For instance, taobao.com uses Alipay as its payment platform, while eachnet.com uses the service of Security Pass. Both websites require consumers to first deposit cash into an account with Alipay or Security Pass, which then notify enterprises to deliver the goods. Only when consumers confirm that the goods received correspond with the goods ordered online will Alipay or Security Pass send payment to the sellers. Under this arrangement, an enterprise can also ensure that payment has been received before the goods are delivered. 

With a stable pool of customers and steady click rates, third-party transaction platforms provide online businesses with a speedy channel to reach potential consumers. 

Group Buy  

     
 

Social Networking Emerges

 
     
 

Despite the growing number of users, social networking services (SNS) on the mainland are still in their infancy. Numbers  surged from 176 million (or 45.8 per cent of all netizens) in 2009 to 230 million (47.7 per cent) in 2011, showing that close to half the mainland’s Internet users hold accounts on social networking sites. 

These instant exchange platforms typically have links such as “concern,” “forward,” “comment” and “hot topic” that offer users convenient means of sharing information. 

Enterprises can open accounts for their products, services or the enterprises themselves and form groups using interactive means to “share” information on products and services, as well as promotional messages. 

Estée Lauder used weibo.com to carry out experiential marketing, with products introduced to consumers in a light-hearted manner. The campaign attracted more than  45,000 “fans.” 

Another promotion used by a Hong Kong-owned Japanese restaurant in Beijing involved a snack give-away for customers who took photos of their favourite dishes and uploaded them to weibo.com. In six months, the restaurant had amassed more than 3,000 “fans,” and the number of new customers grew by 40 per cent, with total turnover up by 25 per cent. 

Unlike paid advertising, enterprises that use social networking sites for sales and marketing generally don’t pay a fee. But to ensure visitors stay long enough and eventually return, sufficient manpower is needed to frequently update sites.

 

 
Group-buy websites, which have fared well on the mainland , are also third-party transaction platforms. With surging numbers of users, group-buy has emerged as a new e-commerce model and an effective means to publicise company products and services, as well as to test the market. 

Last year, there were about 18.7 million group-buy users on the mainland, making up about 4.1 per cent of all Internet users. By June 2011, the figure had jumped to 42.2 million, accounting for about 8.7 per cent of all netizens. 

The number of group-buy websites has also soared, with 1,664 sizeable group-buy websites now in existence (including subsidiary websites in various localities and group-buy channels). Among them, Beijing (473), Shanghai (183) and Guangzhou (77) boast the greatest numbers. 

Group-buy websites offer bargain prices as a selling point for products and services within a designated sales period. When the number of buyers reaches a target figure, the products or services can be purchased at the given price, and the group-buy websites will carry out transactions with customers through accounts the latter provide. If the number of would-be buyers falls short of the target price, the deal will be cancelled and customers will not be charged a fee. 

Products are usually mailed to customers or collected at designated outlets. For services such as beauty care, dining and cinema tickets, enterprises send e-mail redemption coupons to their customers, who can purchase these within a designated period. 

Price discounts offered by group-buy sites are often quite substantial (typically, 50 per cent to 80 per cent for products and 30 per cent to 50 per cent for services), attracting young customers. Sales channels aside, group-buy can also help promote the company. 

For example, the group-buy campaign for electric shavers launched by www.groupon.cn saw more than 40 buyers register, while a total of 18,516 people clicked on the group-buy landing page. Netizens were also able to use e-mail and social networkig links on the webpage to forward and share the news. The campaign showed how Groupon helped its client at limited cost and within a short space of time. 

Revving Search Engines   

Mainlanders are accustomed to surfing the web using search engines to quickly look for the right products. It’s therefore crucial for an enterprise to capture e-marketing channels and search engines to highlight its products and services. 

Online advertising incurs relatively lower costs, without being bound by time and geographical limitations, making it an attractive option for SMEs. Online advertising has soared on the mainland from four per cent in 2006 to 13 per cent in 2010. Of the two main categories – search engine marketing (SEM) and brand advertising – SEM has taken the lion’s share. 

Effective Search Engines   

SEM refers to advertisements that are displayed in the search results listed upon a consumer’s input of certain keywords. Interested advertisers submit bidding prices to buy keyword rankings. The higher the bid, the higher the chance that a certain ad will be placed at the top of the search results. 

However, enterprises have to note differing terms and expressions used on the mainland and in Hong Kong. For example, USB memory sticks in Hong Kong are called “U-Disks” on the mainland. 

Enterprises also have to clearly categorise and precisely describe their products and services to increase click rates by “real buyers.” If a company sells “beauty care services for pets” and only uses “beauty care services” as the search keywords for its website, it could result in very high click rates but not necessarily the pet-owning shoppers targeted. 

“Search engine optimisation” (SEO) is another marketing method and involves capitalising on the search methodology to raise the natural ranking of a website in the search list. Higher click rates, however, don’t necessarily lead to an increase in customer numbers. Much ultimately still depends on the quality and prices of the products and services being offered. 

For more on the Chinese mainland market, please see the September issue of the HKTDC Trade Quarterly, which can be ordered at: http://bookshop.hktdc.com/.

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