January 20, 2009
Online Chinese Retail: Assessing Opportunities In Chinese eCommerce
by Patti Freeman Evanswith Cristina Bugnaru
ExECUTIvE SUMMARyThe number of online users in China will reach 275 million by 2012, which is 12% greater than the US projected number. Nonetheless, 74% of Chinese online users have a low income level of less than $290 per month and thus present a less active potential market than affluent online US buyers. Foreign retailers launching eCommerce sites in China should consider additional factors besides the sheer size of the population, and they must adjust their sales expectations to the demographics of the local market. In August 2008, JupiterResearch conducted a WebTrack that studied 15 Chinese Internet retailers and the top 50 US Internet retailers according to certain predetermined criteria. The results of this study show the major differences between the two eCommerce markets. For example, most Chinese eCommerce sites offer traditional payment methods such as cash on delivery versus credit products. Foreign retailers launching eCommerce sites in China should enter the market by using eCommerce practices that have proven successful in the US market and applying them judiciously to the Chinese market without losing sight of the local cultural and social traits.ONLINE POPULATION IN cHINA mAy NOT sUrPAss THE Us IN sALEs POTENTIAL
China is one of the countries that will experience some of the highest online population growth rates, with a CAGR of 12%.1 This will bring its online population to 275 million users, putting China ahead of the 241 million regular online users in the US.2 The prospect of such a large untapped market for most retailers is an attractive one; however, the potential sales in China are not necessarily as large as the user base would imply.
· A vast online population does not justify immediate market investment. Currently, almost three-
fourths of the Chinese online users earn less than $290 per month, or less than $3,500 per year,
versus an average yearly income of $67,833 for the US.3 In addition, US online retail is largely driven by purchases from users with high spending power who earn $75,000 per year and more. Therefore, despite the raw number of online users in China, the actual sales potential from these individuals is much less than we would expect from other markets.
· The majority of the Chinese online users are not in their prime spending years. More than half
of Chinese online users are younger than 24 years old. Only 28% are between the ages of 25 and 40 years old.4 Since the majority of online users have not reached their prime spending years, the volume of purchases they make online is going to increase with time — it has not yet reached its full potential.
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· China is vulnerable to the general economic downturn. China is not immune to the
generalized economic crisis that has hit global levels at the end of 2008. The Wall Street Journal quotes the Chinese Central Bank, saying, “Uncertainties in the domestic economy are rising, and the risk of an economic downturn is getting bigger.”5 Those Internet retailers considering entering this marketplace will now need to leverage global and local know-how and adjust their calculations in anticipation of a longer-term ROI horizon than previously expected.6
Provide Locally Preferred Online Payment Options; Test Alternative Online Payment OptionsFor US retailers that are entering the Chinese market now, a few considerations present themselves as must-have experiences, as well as opportunities to excel. In August 2008, JupiterResearch
completed a WebTrack that analyzed the top 50 US and 15 major Chinese online retailers, according to preset criteria.7 The results of this WebTrack reveal some of the similarities and differences between Chinese and US eCommerce. One major difference is evident in the payment methods offered, an indispensable feature of all eCommerce sites. In the US, 24% of online shoppers consider multiple payment options, in addition to credit and debit, to be useful retail site features when
researching and purchasing products online. Multiple payments streamline the purchasing process; therefore, new entrants to the Chinese eCommerce market could gain a competitive advantage by offering such options on their Web sites.8
· Unlike the US, traditional payment methods are prevalent online in China. US retailers
expanding into the Chinese eCommerce environment must ensure that they have operations in place that can equally accommodate traditional payment methods such as cash on delivery, direct transfer, or postal remittance. The majority of local Chinese competitors accept these payment methods. Of the 15 Web sites researched in the Chinese WebTrack, only six allow payment via a main credit card, whereas 14 of these 15 Web sites allow cash on delivery as a payment method, 13 offer the postal remittance payment option, and 12 facilitate direct transfer or check payments. In the US, all of the top 50 Internet retailers accept credit card payments, whereas only 2% and 10% respectively accept cash on delivery and direct transfer.
· Alternative online payment methods could be a means of gaining online users’ trust.
Internet retailers looking to expand in China should use alternative online payment methods as a means of thwarting the general feeling of mistrust that consumers have toward retailers in general and online retailers, as well as encouraging the evolution of the Chinese eCommerce environment. Eight of the 15 researched Chinese Internet retailers offer alternative payment methods such as PayPal, Alipay, and 99bill.com. This number indicates potential for increasing interest in payment methods other than the traditional ones and credit. Unlike cash, these new methods make the purchasing process smoother, offer recourse to buyers, and hold both buyers and sellers accountable.
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Online Chinese Retail: Assessing Opportunities In Chinese eCommerce
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Offer Improved content And Features To Differentiate Against competition
Most of the 15 researched Chinese Web sites display the search function on the home page or basic information such as links to cart/checkout in the global navigation. New entrants to the Chinese eCommerce environment can gain a competitive edge by going beyond these basics and displaying enhanced content and features like the product comparison function or better shipping and returns policies. At the same time, trust remains an overarching issue on the Chinese market. China is well known for the lax product standards and regulations that triggered the toy scandal and, more recently, the milk scandal. Gaining trust online is even more difficult due to the intangible nature of the Web; thus, building trust through content and features remains of prime importance (see Figure 1).
· Better shipping and returns policies could thwart the general feeling of mistrust. Twenty-
eight percent and 26% of US online buyers consider return and shipping policies, respectively, among the top 10 most useful types of content when researching and purchasing products online.9 Twenty-two percent and 30% of US Web sites display their returns and shipping
policies, respectively, in the checkout process. For example, Overstock.com features the returns policy directly in the shopping cart under the catchy heading “Returns are a snap” and also displays an “Easy Returns” link throughout the checkout process. Our Chinese WebTrack
demonstrates that none of the 15 researched Web sites display the returns or shipping policies in the shopping cart, and only one displays the returns policy in the checkout process. Taking the example of the US market, retailers applying a similar strategy on Chinese eCommerce sites will be able to create a more trustworthy climate and encourage online users to shop.
· Chinese online retailers should enhance site features to take site experience to a new level.
According to our WebTrack, site search is ubiquitous on Chinese online retailers’ Web sites, being displayed on the homepage as well as on all pages. More than half of these retailers also have an improved search function, which allows results to be sorted by multiple attributes like relevance or price. When combined with other features, this function becomes even more powerful. For example, US online retailers have taken site search to a new level by giving shoppers the ability to filter search results by customer reviews: 26% of Internet retail executives responding to a recent JupiterResearch survey mentioned this as one of the top three sales drivers.
January 20, 2009© 2009, Forrester Research, Inc. Reproduction Prohibited
Online Chinese Retail: Assessing Opportunities In Chinese eCommerce
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Figure 1 Enablers And Inhibitors Of eCommerce Expansion Into China
Online users’income levelsOnline users’age structureEconomic downturn
Success ofexpansion into ChineseeCommerceAlternativePopulation growthpayment methodsImproved site contentand featuresSource: Forrester Research, Inc.
Size of market
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ENDNOTEs
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For more information, see the June 3, 2008, “Worldwide Online Population Forecast, 2007 to 2012: Driving Growth Through Emerging Economies” JupiterResearch report.Source: JupiterResearch Internet Population Model, 2/08 (US).
Source: “Statistical Survey Report on the Internet Development in China,” China Internet Network Information Center, January 2008 (http://www.cnnic.cn/uploadfiles/pdf/2008/2/29/104126.pdf) and JupiterResearch Internet Population Model, 2/08 (US).
Source: “Statistical Survey Report on the Internet Development in China,” China Internet Network Information Center, January 2008 (http://www.cnnic.cn/uploadfiles/pdf/2008/2/29/104126.pdf).Source: “China Downturn Risks are Rising, the Nation’s Central Bank Reports,” Wall Street Journal Asia, November 17, 2008.
For a more in-depth understanding of the Chinese eCommerce environment, see the May 14, 2008, “Global Online Retail: Navigating Successful International Expansion” JupiterResearch report, and see the January 16, 2008, “Web Site Localization: Best Practices in Global Expansion” JupiterResearch report.The August 2008 JupiterResearch Chinese WebTrack analyzed 15 of the major Chinese internet retailers according to preset criteria, which include: ease of access, payment options and types, merchandising, and international accessibility.
Source: JupiterResearch/NPD Consumer Survey (4/08), n = 2,460 (US).Source: JupiterResearch/NPD Consumer Survey (4/08), n = 2,460 (US)
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