How Chinese Tech Builds Trust, Part II: China’s Marketplaces Are Like Tinder for Brands
Plus: Nike's reality show push, Alibaba redefines luxury, and China's esports explosion.
|Aug 27|| 3|
In this weekly series, How Chinese Tech Builds Trust, CCI aims to demystify the fundamentals that drive Chinese e-commerce, explaining why critical practices have evolved the way they have and helping brands predict what comes next. From the triggers behind Baidu’s downfall to the rise of social commerce, we’ve got you covered. And if you missed the first installment last week, give it a read here.
Digital Department Stores
In most of the world, your Nikes and your H&Ms sell through their own websites. They own the entire process — the branding, the user experience, the funnel, the data — and email you birthday discounts. Let's say you’re shopping on Nike’s site: it lives and breathes its brand identity. If you turn the volume up, you’re likely to hear Michael Jordan whispering Just Do It. Fairly effective. Other direct-to-consumer brands might use Shopify. The Caspers, Allbirds, and Warby Parkers of the world rake up millions with it.
But D2C looks different in China.
Close to 60% of all e-commerce sales in China take place within the Alibaba ecosystem, while JD.com and Pinduoduo have a combined 25% market share. America's closest counterpart to Taobao and Tmall, Amazon, commands 37% market share, and Shopify has just around 6%.
Asking whether or not this matters is akin to asking whether you want your customers shopping at a department store or your own store. Tip: it's the latter.
Most mobile web browsing experiences are terrible. I'd rather invest all my money in bitcoin (HODL) than use a mobile browser. So smart people developed apps. Americans spend 150% more time on mobile devices than on desktops, but in China, it’s 2.3x. Non-professional desktop usage is actually so low that it dropped from 2014 to 2015, while mobile leapfrogged, hard.
Taobao reinvented shopping entirely by taking a page from social networks, namely, content feeds. None of that static web stuff — Chinese feeds bring together product listings, reviews, and livestreams. Mine, for example, contains many cheese videos (high conversion rates). Existing as a mere sidebar, Amazon's "feed" is years behind, like its mobile experience generally. But I'm guessing Jeff Bezos doesn't need the money.
Taobao, JD.com and Amazon function as automated department stores. And while department stores are great for product discovery, they aren’t always so great for brands. Especially in China, where far less time is spent on brand-owned pages. As a result, brands are relegated to consumer data that platforms give them access to, which is not not nearly the same as owning your own channel.
Consumers become loyal to the department store, and less so to the brand. As Nielsen puts it: "With the overwhelming majority of consumers actively or passively open to unfaithful actions, the risks for brands have never been greater.” It’s a digital Temptation Island over here, and Taobao and JD.com are more like Tinder for brands than anything else.
Competitors are just a swipe away. So how can any single brand stand out?
Establishing a distinct visual identity is fundamental and you probably already do it. When a customer asks, "why should I buy your product?” be sure you know the answer. According to one study, 89% of Chinese survey respondents reported that loyalty programs make them want to spend more.
Highly engaged gated communities work too. Think status-as-a-service. For example, video streamer Bilibili (previously on CCI) requires users to pass a geeky 100-question test (with questions such as, "where is Ultraman's homeworld?") in order to gain full membership privileges. It's not a bug — it's a feature and part of the platform’s appeal.
Content production, engagement, and storytelling are key elements when brand communication is taking place largely through feeds. Taobao has its own media ecosystem, its own user-generated rich media, its own livestreamers, and thousands of brands competing for eyeballs on its platform.
It's 2020, and all brands are media companies.
Anytime we talk about Chinese platforms (Taobao, WeChat, Pinduoduo, Xiaohongshu, etc. ) we are talking about mobile experiences. Even if some of these platforms offer a desktop experience, it tends to be lacking.
Another thing mobile platforms do great is seamless integration. No pop-up windows, no new pages loading. Everything is horizontally integrated, from payments to sales to every digital service imaginable. It’s as if Mastercard, Shopify, and Facebook were all bundled into one product (that would be one hell of a congressional hearing).
What Do You Think?
Amazon probably doesn’t have as much incentive to innovate. Alibaba is in a continuous arms race with JD.com, Pinduoduo, and other innovative contenders. Who is Amazon up against?
As a consumer, why are you loyal to brands? As a brand, why are consumers loyal to you? Visual identity? Loyalty programs? What else?
- by Tanya Van Gastel, CCI Team
Mentioned in today’s newsletter: Alibaba, Amazon, Balenciaga, Bang & Olufsen, Bilibili, Cartier, Douyu, Facebook, H&M, Hugo Boss, Huya, iQiyi, Jaeger-LeCoultre, JD.com, Maserati, Mastercard, Net-a-Porter, New Balance, Nike, Pinduoduo, Shopify, Taobao, Tencent, Tmall Luxury Pavilion, Valentino.
Trending Brands on Chinese Reality Shows: Nike Joins the Sportswear Trend
The coronavirus pandemic’s abrupt stalling of major events around the world was a blow to the sportswear industry, but the sector has been able to benefit from the increased awareness of the importance of good health and a rising interest in fitness and exercise clothing as a result.
But even beyond the demand for workout gear, the sportswear trend has taken off in China, where, as elsewhere, millennial and Gen Z consumers enjoy dressing in activewear both for comfort and as a signifier of social status and lifestyle aspirations.
While 2020 has seen limited opportunities for sportswear brands to market themselves through major events — including the postponed Tokyo Summer Olympics — they are finding a lucrative channel in Chinese reality shows, which offer ample opportunities to connect with target audiences of young consumers in a variety of programming formats.
Nike has stepped up its role in Chinese reality programming this year, starting with iQiyi’s top-rated idol competition “Youth With You” (青春有你2), in which all of the contestants were dressed in matching head-to-toe Nike outfits — including Air Max 90 sneakers — for a team singing and dancing challenge.
More recently, Nike has followed up with prominent placement on the fashion-oriented series “Where Are The Trendsetters?” (潮玩人类在哪里) starring streetwear icon Kris Wu alongside actors Van Ness Wu and Lee Chansam. The series revolves around the creation of fashion labels headed by each of the celebrity captains, with the help of 55 contestants. While the series aims to promote Chinese culture, Nike positions itself as an established player on the domestic scene, where it has had a consumer presence since 1981. In one team challenge, finalists are tasked with redesigning a pair of Nike Air Jordans or Air Force 1s, with the results determining who makes the cut for the final ten. Eagle-eyed fans of the show also researched the exact model of shoes worn by the hosts (including limited-edition collaborations with Supreme and Travis Scott) so that they could seek out the same styles on sneakerhead resale platforms.
Sportswear brands fit in naturally with shows that focus on sports and fitness challenges, but have a role to play on idol competition shows and other series in which dance is an important element. Previous seasons of “Youth With You” and its predecessor, “Idol Producer” (偶像练习生), were sponsored by New Balance and Skechers.
Domestic sports brands such as Xtep and Anta have also been active, especially on shows that bring together celebrities and sports for entertainment. In 2019, Xtep was the title sponsor for the Youku’s hit “Street Dance of China” (这就是街舞), embedding the brand’s sportswear into China’s trendy dance culture.
- by Ginger Ooi, CCI Team
Alibaba Introduces “New Luxury” Content Offerings to Appeal to Gen Z Consumers
E-commerce giant Alibaba has announced a significant overhaul of its luxury-focused platforms, which include Tmall Luxury Pavilion and outlet Luxury Soho, in a content-driven bid to connect high-end brands with the critical young consumer demographic that will determine the future of the industry.
According to a Bain & Company study released earlier this year, Gen Z consumers could account for 40% of luxury purchases by 2035, up from only 4% today. (Chinese shoppers were already responsible for 90% of the market’s global growth in 2019, and 35% of the overall value of luxury goods sold in the world.)
The initiatives in Alibaba’s “The New Luxury” push aim to solve some of the longstanding issues faced by high-end brands in going digital while maintaining the auras of exclusivity and quality that they are best known for.
Tmall aimed to address the third-party virtual storefront challenge by establishing Tmall Luxury Pavilion in 2017, allowing brands to benefit from Alibaba’s massive user base and expertise in data and marketing while retaining control over the look and feel of the online experience.
Since its launch, Tmall Luxury Pavillion has drawn nearly 200 major players to establish official flagship stores, including Net-a-Porter, Cartier, and Maserati, with increasing interest seen this year as a result of the coronavirus, which forced retail store closures in China earlier this year. The Richemont-owned Swiss watch brand Jaeger-LeCoultre is one new entrant that would have seemed implausible not too long ago — but it is now offering a unique timepiece priced at more than RMB 2 million ($290,000) as part of its flagship launch campaign, drawing interest from more than 100 prospective buyers.
Alibaba will now introduce a new livestreaming service just for luxury brands that will allow them to stand apart from the masses featured on Taobao Live. Called “Soho Live,” the new platform will likely help to ease the transition into e-commerce livestreaming for premium brands that may be hesitant to join the fray on more crowded outlets. (For more on livestreaming for luxury, download the Jing Daily-Content Commerce Insider white paper, “Next-Level Livestreaming: How Luxury Brands Can Profit From China’s Top E-commerce Trend.)
Consumer loyalty is also big business in China, where close to 90% of shoppers say loyalty programs make them willing to spend more. Alibaba is expanding its Tmall Luxury Pavilion club to make it more accessible to younger consumers. Shoppers will be able to become “gold” members with just RMB 10,000 ($1,447) in spending on the platform over the past year, while RMB 25,000 ($3,617) will qualify for “black” membership. Brands will be encouraged to offer special rewards and exclusive content and experiences, such as Bang and Olufsen’s upcoming members-only livestream event, which will offer chances to win headphones and private screenings at the brand’s in-store theater.
Other parts of Alibaba’s youth-oriented luxury content push include the launch of “Soho Mag,” a shoppable digital publication, additional AR and 3D features that can help upgrade the online shopping experience, and assistance with creating “cloud pop-up shops” that appeal to the Gen Z penchant for limited-time experiences. For the recent Qixi festival, Tmall’s Gen Z marketing unit created a three-day virtual pop-up that invited shoppers to explore fantasy worlds represented by brands such as Balenciaga, Valentino, and Hugo Boss along with their new products.
The moves frankly reflect the reality of Alibaba’s luxury consumer base. Around 80% of luxury consumers on its domestic platforms are 35 and under, with the youngest group of 18 to 25 growing fastest — its numbers reportedly doubled between June 2019 and June 2020.
CCI Take: Esports Is the New Battleground for Chinese Tech Giants
After gaining official recognition from the government in 2019, China’s budding esports sector has turned into a heated battleground for major tech companies looking to get a piece of a fast-growing global industry. According to a report recently published by the China Game Industry Research Institute, China’s esports industry had 484 million users in the first half of 2020, a nearly 10% increase from the same period a year earlier, and generated $10.3 billion in revenue, a year-on-year increase of 55%.
One fast mover that has looked to consolidate its place — and the central position of the companies in which it invests — is tech giant Tencent. Tencent wants to corner as much of China’s $3.5 billion game livestreaming market as it can, and is moving to do just that with a proposed merger of game livestreaming platforms Douyu (NASDAQ: DOYU) and Huya (NASDAQ: HUYA) — it is a major investor in the two, which have a combined 315.8 million monthly active users (MAUs).
Brand Film Pick: Taobao Life’s Virtual Love for Qixi
Taobao Life (淘宝人生), the immersive video game integrated into Alibaba’s online shopping platform Taobao, does more than just enhance the shopping experience. By including social components, such as the ability to interact with the avatars of friends and celebrities, Taobao creates a dimension of its own. Though game development may still be in its early stages, it is easy to imagine our lives becoming equally dependent on human and virtual relationships, which is precisely what Taobao attempts to do in its brand film series “1/7 Life.”
As its name suggests, “1/7 Life” consists of seven commercial shorts, which seek to portray aspects of life — freedom, love, beauty, hope, dreams, youth, and wisdom — as they would exist in a multidimensional world. The first episode, “Freedom,” stars singer Zhang Yixing in a tale about a race of flying people who are being tracked down and exterminated by the authorities. Yixing’s character, who is one of the few remaining flying humans, uploads himself to the cloud to escape the genocide of his people. “Freedom” suggests that the added dimension of virtual reality gives users an escape from their everyday confinements and expands their freedoms.
The second and most recent installment, "Love,” presents the dilemma of a romantic relationship between a real and virtual human. In the film, programmer Henry falls in love with virtual being Dora, but humans and virtual humans are not permitted to be together in this world. When Henry’s boss discovers the couple's relationship, he sends Henry away for rehabilitation. However, Henry’s feelings for Dora cannot be denied. Following his release, Henry chooses to become a virtual human to be with Dora. Unbeknown to him, Dora has already used all of her virtual points to upgrade herself to a human. The tragedy depicted in “Love” highlights the possibility for profound relationships between humans and virtual humans in real life. Of course, Taobao further insinuates that virtual reality is an apt vessel for human relationships.
Taobao Life has clearly sparked a dialogue about its product attributes in the context of the themed stories unveiled in its “1/7 Life" series. By adopting science fiction as a lens for its brand films, Taobao hopes to accustom its users to a future in which virtual reality plays a larger role in their lives.
- by Ben Guggenheim, CCI Team
News in English
TikTok chief executive Kevin Mayer has resigned just months after taking the position, citing a “sharply changed” political environment after Donald Trump accused the platform of threatening national security. The Guardian
Amazon is pushing ahead with plans for a September launch of a luxury platform that will allow premium brands to operate their own digital storefronts. WWD
WeChat is likely to remain accessible for American brands that use the platform to connect with consumers in China, as the Trump administration is reportedly offering private reassurances that businesses will not be affected by a threatened ban on Tencent’s super-app in the United States. Bloomberg
Tencent plans to invest more than $725 million to establish a headquarters for culture and creativity in Chengdu that will be geared towards businesses involved in gaming, esports, animation, video, and cultural tourism. PR Newswire
McKinsey China senior partner Daniel Zipser discusses the role of China’s e-commerce innovations in how the country weathered the coronavirus crisis and new retail consumption trends. Alizila
China’s milk tea craze is prompting more brands to get in on the trend, either by expanding into their own beverage ventures or through partnerships and collaboration with established tea chains. Campaign Asia
While e-commerce livestreaming by celebrities draws outsize attention, the bulk of the industry is fueled by smaller players trying to eke out a living through authenticity and loyal buyers. Sixth Tone
We’ve Got China Covered:
China Film Insider: The Show Must Go On: How Cirque de Soleil Survived China’s Lockdown
Jing Travel: How Chinese Museums Are Reaching Younger Audiences
Thank you for reading! We’ll be back on Tuesday with more news and exclusives. And if you had this twice-weekly newsletter forwarded by a friend or colleague, we’d love it if you signed up as well. Have a safe and productive weekend!