For a glimpse of what’s to come in retail in the US and other western markets, industry watchers are looking to China. The biggest retail market in the world, China has heavily invested in automating the customer experience to deliver efficiency, convenience and personalized service.
We look at China’s sophisticated innovations like social commerce, mobile pay and online-to-offline (O2O) service to see what retail trends could lie ahead.
Mobile payment is making life easier in the post-pandemic era
Mobile payment is everywhere in China. Mobile payment becomes ingrained in consumer lifestyles and social media platforms, like WeChat, as those platforms add more payment features.
For one, the application scenarios for mobile payments are getting diverse. Mobile payment has immersed in Chinese netizens’ lifestyles, extending to their supermarkets, convenience stores, shopping malls, vending machines and restaurants. According to iiMedia Research, the three scenarios in which respondents most often use mobile payment platforms are food and beverage consumption (69.5% of the time), small brick-and-mortar stores (69%) and online e-commerce shopping (65.3%).
Mobile payments in China involve QR codes. All you need to do is scan the seller’s QR code with your WeChat Pay or Alipay app, enter the password for payment, and the specific amount of money will be deducted from your mobile wallet.
At this stage, Alipay and WeChat Pay dominate the third-party mobile payment market in China, and the two platforms have become the primary choice of users due to their high market penetration and top-of-mind brands, which attract heavy online traffic. Driven by the third-party platforms, consumers have a wide range of mobile payment options for everyday use . Also, mobile pay’s convenience, efficiency and high penetration rate have made digital options more attractive and accessible.
COVID-19 boosted mobile payments in China. After the COVID-19 pandemic began, the Ministry of Commerce of China issued an initiative on Feb. 6, 2020, to encourage people to use mobile payment and online payment to avoid the risk of infection. This action boosted mobile payment transactions in China. According to China Internet Network Information Center’s report released in September, the number of mobile payment users reached 802 million, up 36.64 million from March 2020, accounting for 86.0% of mobile internet users. In the first half of 2020, China’s mobile payment amounted to 196.98 trillion RMB (nearly $30 trillion US), up 18.61% year over year, ranking first in the world.
China’s mobile payment industry mostly is driven by enthusiasm for non-cash payment. As COVID-19 encourages digital consumption, domestic merchants are increasing their investments in contactless payment options to modernize the brick-and-mortar experience.
Social commerce makes shopping a social experience
The idea of social commerce has become the new norm in China’s e-commerce industry.
What’s social commerce, and why should your brand care? Social commerce is what happens when savvy marketers take the best practice of e-commerce and combine it with social media.
The main driver of employing social commerce is that user acquisition costs are sky-high. The costs of acquiring new customers on Alibaba and JD.com are 812 RMB ($123 US) and 176 RMB ($26 US), respectively. As such, brands in China have shifted to social commerce to help them reach new customers.
The fast-growing social commerce market is expected to reach nearly RMB 3.5 trillion ($530 billion US) by the end of 2020, with the share of group-buying and WeChat-based social commerce exceeding 90% of the overall market. The coronavirus pandemic increased the number of consumers who understand and use social commerce as a new way of shopping and integrating it into their daily lives.
One typical example is group-buying social commerce. Only three years after its launch, Pinduoduo has grown into China’s third-largest e-commerce platform. Pinduoduo offers group-buying deals at reduced prices, which incentivizes users to share good bargains among their friends and family on social media. In this case, customers can enjoy the steeply discounted product price and earn the commissions if their friends join the group-buying deal and successfully place orders.
This year’s 618 mid-year shopping festival in June was the first major e-commerce event since the start of the COVID-19 pandemic. The e-commerce battle was in full swing, making it an ideal time for the social media platform Pinduoduo to enter the game.
Pinduoduo announced on June 9 it would increase tens of billions of RMD in subsidies to inspire more consumers to shop. At the same time, the high number of subsidies covered international brands such as Estée Lauder, SKII and Dyson. It is hoped that this will break the perception among consumers that Pinduoduo mainly sells knock-off and low-end products. The purpose of launching high-end products is to increase the penetration of high-spending users and strengthen the competitiveness of the platform in categories such as electronic devices, mom and baby, beauty and other categories.
Another emerging example is WeChat social commerce. WeChat mini-programs have been taking China’s e-commerce industry by storm. This year, WeChat is the most popular social commerce platform in China, attracting more than 1.1 billion monthly active users.
The new business model based on the WeChat ecology provides a wide range of “acquaintance” customer groups (e.g. friend circles and community/business community) and broad reach (e.g. official account subscription messages, coupon distribution, exclusive customer service interaction/content marketing, etc.), lowering barriers to entry and helping brands to drive private domain traffic.
In China’s post-pandemic era, an increasing amount of luxury brands such as Givenchy, Burberry and Cartier are using WeChat mini-programs to sell directly to digital-savvy consumers. The milestone of the mini-program this year was the launch of the live streaming feature in April. WeChat’s focus is not on introducing livestreaming as a critical function, but on integrating livestreaming with its mini-programs.
Livestreaming is not just a sales channel, but a place for brands to have deep and direct communications with customers. Brand representatives can help customers select the most suitable products, and also use rewards to encourage viewers to share the link of live stream with their friends and communities.
Online to offline services remain vital
During the pandemic, traditional offline retail channels were hampered. Emerging channels, such as online-to-offline service, have become one of the most popular shopping channels for consumers, especially in the more affluent high-tier cities. This new norm is mainly due to fast delivery services, contactless security and a comprehensive selection of fresh and personal care products. Chinese netizens are expected to retain their purchasing habits after the pandemic.
The outbreak of the pandemic in early 2020 has further accelerated the development of “to-home” O2O, with “to-home” sales expected to overtake in-store sales by 61% this year.
The fast-developing O2O industry is refining traditional retailers. Relying on the connection of online and offline retail, Walmart China’s O2O strategy provides services like online ordering, in-store pickup and one-hour home delivery. All these services are available on its WeChat mini-program store. Based on Walmart’s in-app store, Walmart has further integrated its physical and digital operations and accumulated more than 70 million digital customers by July 2020.
In Q3 2020, 31% of Chinese urban households purchased through O2O platforms, according to Kantar World’s recent report. As China rebounds from COVID-19’s initial surge, O2O traffic has been continuously growing, especially in northern cities and provincial capital cities, indicating that Chinese consumers are more accustomed to purchasing via O2O as an ingrained habit.
2021 e-commerce trends to watch
Global e-commerce best practices hint at trends we could soon see in North America. The following trends are popular and pervasive in China, the biggest retail market in the world:
1. Mobile payment: Increasingly tech-savvy shoppers appreciate the convenience of digital payment. The pandemic makes contactless pay even more attractive to mitigate health and safety risks.
2. Social commerce: The marriage of e-commerce and social media is making e-commerce more interactive and exciting. Group-buying campaigns motivate consumers to shop with their online networks, helping them save money and reducing companies’ customer acquisition costs.
3. Online-to-offline: Smashing the silos between physical and digital retail makes the customer experience more seamless. Retailers like Walmart have benefitted by attracting more customers with omnichannel best practices.
Franklin Chu is managing director for the US for Azoya International, a provider of turnkey cross-border e-commerce solutions to assist retailers looking to expand into China through a cost-effective and lower risk method.