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Delivering on the Baby Business

The Chinese mainland maternity care sector is growing fast. There are clear signs of growing demand in the mother and baby care market. According to recent research by Roland Berger, a Munich-headquartered management consultancy, the mainland's mother and baby care market will grow at an annual rate of up to 16 per cent over the next five years, driven by China's new two-child policy, as well as the coming of age of a new generation of parents born in the 1980s and early 1990s.

As a result, many players in the mother and baby care industry have started exploring new business models fueled by the Internet Plus trend – the growing popularity of combined on- and offline offerings. This has seen a number of the more established players embracing online marketing channels – including mobile apps and social media – while several new mother and baby care online to offline (O2O) platforms have also begun to appear.

Confinement Clubs

Multi-tasking: a nanny essential
Multi-tasking: a nanny essential

Beijing currently has more than 3,000 post-natal care “confinement clubs,” which cater to new mothers who choose to use these private services instead of staying home for their month-long recuperation after childbirth.
Among their operators are several more established businesses in the sector that are looking to expand as brand chains, as well as some new O2O businesses. The real growth, though, has come from the rising numbers of unregulated small companies operating in the sector.

The business’ pricing structure is showing signs of convergence, irrespective of the chosen marketing channel. Confinement nannies (yuesao) charge an average of about Rmb10,000 (US$1,490) a month, while baby-rearing specialists' fees are in the Rmb5,000-Rmb8,000 range. Lactation consultants charge between Rmb300-Rmb1,000 for a one-time service, while a steam treatment for new mothers typically costs Rmb600 to Rmb1,000.

With the rising number of newborns in recent years, high-quality confinement nannies are in demand. On many online booking platforms, the service requires at least six months advance booking.

According to one operator, the popular nannies have at least 10 clients waitlisted at any one time. "It's a lucrative business,” said one service provider. “In every city, across every tier, confinement clubs are in great demand."

Despite the surge in demand, no brand leader has emerged. According to market analysts, this is down to the peculiarities of the sector dominated by referrals. While the market currently largely consists of small, local operators, many believe that the larger brand-name companies will take an increasingly significant share in the future.

Against this backdrop, many established players are seeking to grow through the Internet Plus model, with some introducing online booking services. These allow clients to reserve their chosen nanny or to check out a potential nanny's credentials and social media feedback.

The cost of creating and maintaining mobile apps and social media accounts – such as WeChat and Weibo – typically represents 30 per cent to 50 per cent of the operating costs of a conventional confinement club. The largest proportion of the overall cost, however, is taken up by property rental and personnel training.

The Beijing Municipal Government is giving considerable support to some consumer service chains and other companies adopting the Internet Plus model. According to figures on the Beijing Municipal Commission of Commerce website, funding for Internet Plus projects is currently capped at Rmb2 million. In the case of consumer services chain businesses participating in cooperation projects in the Beijing-Tianjin-Hebei region, some Rmb5 million-worth of funding is available.

Matching Clients with Nannies

High-tech nannies: online supported
High-tech nannies: online supported

While more established players are looking to dominate the sector, several new O2O platforms are beginning to emerge, such as Sinovation Ventures.

An early-stage investment company founded in Beijing by Lee Kai-fu, the American venture capitalist, Sinovation Ventures in 2015 invested in a specialist mother and baby care O2O business. The company – Putiguo – takes a very different approach to conventional chain-store businesses. It has only one office – in Beijing – with all of its activities carried out online.

Compared to online channels of traditional companies, O2O platforms can do far more when it comes to matching clients with the ideal nanny, with neither party restricted to a particular physical location. Clients can screen nannies online in terms of location, price, experience and age, while nannies may be hired across a wide geographical area so long as they meet clients’ expectations.

As part of the process, clients and nannies can vet each other through video interviews, which along with the client's comments, are filed online for reference by other prospective employers. The arrangement is an online take on traditional offline selection methods, using the Internet to save time and ensure a successful match.

The O2O platform eliminates the traditional role of intermediaries, allowing clients and nannies to make direct and individual agreements. The facility to make such bespoke agreements has proved a challenge to the traditional confinement nanny business. The better quality nannies are often keen to make their own arrangements, often contrary to the interests and protocols of the company they work for. At the same time, while hiring a nanny through a private deal – eliminating the cost of paying a middleman – can be cheaper, it can also leave clients feeling insecure.

Chen Guo, Chief Executive of Putiguo, believes that his platform allows nannies to take on their own work, while both parties are still clear about what is on offer. "We provide a level of reassurance by ensuring service standards and monitoring performance." In effect, clients pay for this reassurance, while the platform operator does not charge a traditional commission fee.

As well as matching clients with nannies, O2O platforms help set service standards. Explaining his company's strategy, Mr Chen said: "We market via WeChat, then offer our support services through the same intermediary."

Popular social media channel WeChat facilitates the screening process. Once a nanny is selected and a contract signed, the full package of standard services is delivered via the app. The nanny records the baby's progress daily via the app, including such details as temperature, bowel movement and sleep. This enables the company's support staff to remotely assess the baby’s health, promptly alerting the nanny of any potential concerns and, when required, providing additional guidance.

According to Mr Chen, some 40 per cent of Putiguo's clients come from referrals. Despite the increasingly competitive nature of the market, the success of its model and the wider uptake of its services have enabled Putiguo to raise the average charge for one of its nannies by 30 per cent year-on-year. This is seen as a sure sign of the market’s robust nature and an endorsement of its operating model.

For more China market opportunities, please visit: http://research.hktdc.com.

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