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- 23 Nov 2011
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The World’s Next E-Commerce Superpower

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China is home to the largest population of Internet users: 457 million in 2010


We share the key insights from Boston Consulting Group’s recent report, The World’s Next E-Commerce Superpower: Navigating China’s Unique Online-Shopping Ecosystem

It is no secret that consumerism is already big in China – as BCG put it “people simply love to shop” – and when you consider that China now has more internet users than the US and Japan combined, it is unsurprising to learn that e-commerce is the latest boom. As the internet and media in China becomes more sophisticated, in a bid to modernise communications by the government, consumers are demonstrating more and more confidence in purchasing online.

The Internet is widely affordable and accessible to approximately 90 percent of China’s population. Broadband Internet costs just $10 per month, compared with $30 per month in India and $27 per month in Brazil, less than 2% of an average family income of $830. Urban China is nearing a developed country’s Internet reach, while having a developing country’s level of physical retail consolidation – unsurprising when you consider that China is estimated to occupy 9.6 million square kilometres.

E-commerce in China benefits from the ability to get more goods to more consumers and its penetration has grown rapidly from a low level. Less than 10 percent of China’s urban population shopped online in 2006. That figure jumped to 23 percent by 2010, and will nearly double to 44 percent by 2015, quickly narrowing the gap with the United States and other developed markets. Luxury Society is pleased to share the insights from Boston Consulting Group’s recent report, examining The World’s Next E-Commerce Superpower.


Conducting the report …

Boston Consulting Group drew from surveys of more than 4,000 online shoppers across tier 1 through tier 5 cities.


 China is home to the largest population of Internet users: 457 million in 2010, more than in the United States and Japan combined 


Not so surprisingly…

BCG identified China as home to the largest population of Internet users: 457 million in 2010, more than in the United States and Japan combined. As Internet usage ramps up, so too does adoption of online shopping, aided by a number of circumstances that set the stage for a coming e-commerce explosion.

The most commonly cited barriers to e-commerce adoption in China were identified as the lack of satisfactory method for payment and a low level of trust in a consumer population wary of fake or inferior goods. In recent years, the most successful retailers have been those to address these very issues.

The study also confirmed that offering an online-only experience is not sufficient. The offline, in-store experience remains a key factor that influences consumers’ purchase decisions. The survey identified that, on average, more than 50 percent of consumers pay a visit to offline retail stores before making an online purchase. Some browse online first and then visit the store to get a better sense of the look and feel of the product, while others develop their intention to buy at the retail store but make the final purchase decision on- line afterwards.


 Urban China is nearing a developed country’s Internet reach, while having a developing country’s level of physical retail consolidation 


More Surprisingly

Chinese consumers have moved quickly from having little familiarity with online shopping to a relatively high level of comfort and adaptation. In addition, the e- commerce industry has benefited from China’s low cost of shipping – $1 on average to ship a 1-kilogram parcel, versus $6 in the United States.

Chinese consumers are also using mobile to go online. Roughly half of urban Chinese consumers have access to a mobile phone, and of those, about half use their phones to gain access to the Internet. These rates are on par with developed markets such as the United States, Europe, and Japan. However, China far exceeds those markets when it comes to people who indicate an interest in using their phone in the shopping process, whether to check prices or to find additional product information while shopping in physical stores.

This is particularly relevant in the case of the rural consumer. The study identified the mobile phone as a secondary device to computers in the urban environment, but as a primary device in rural China. Here, mobile phone penetration is high, but people are just beginning to have access to the Internet with computers – as little as18 percent. Therefore mobile plays a more important role in the e-Commerce process, when compared to urban countries or the developed world.


 Chinese consumers have gone from having a little familiarity with online shopping to a relatively high level of comfort and adaptation 


Additionally…

The types of websites Chinese consumers choose for purchasing online, researching products and/or seeking out reviews, are quite different from those in other countries. Only 19 percent of consumers in China go to official brand or manufacturer websites, versus 41 to 60 percent in Japan, the United States, and the European Union. The Chinese websites of foreign brands are often direct translations of their home-country websites, with little customisation or localisation for the China market. They have been criticised for failing to create any sort of platform to engender a sense of community, which would attract consumers to visit frequently.

Chinese consumers are quite possibly the most social in the world during the shopping process. Certainly, they are the most prolific reviewers and readers of online reviews. Across 20 countries surveyed, Chinese shoppers were the most likely to respond that they had read or posted reviews online (more than 40 percent had done both). This is nearly double the rate in the United States. And, although social networking is still just emerging, Chinese consumers are the most likely to check for product recommendations on these sites.

Finally, the relationship between search and online retail sites is different in China. In most markets elsewhere around the world, searches begin with Google. In China, the top search engine is Baidu.com, but many top e-tailers block the Baidu spider – meaning that consumers cannot find product listings within websites through a Baidu search. Because of this, Chinese shoppers are developing the habit of not relying on search engines to find products online.


 Only 19% of consumers in China go to official brand websites, versus 41 – 60% in Japan, the United States, and the European Union 


Looking to the Future…

2011 to 2013 will be a period of rapid e-commerce penetration in China. E-commerce is thought to develop rapidly across all categories up until 2015. The number of e-shoppers will double, from 23 percent penetration of the total urban population in 2010 to 44 percent. And shoppers will buy online in more and more categories as they become more experienced and comfortable with making online purchases.

In terms of growth, an astounding 30 million consumers are expected to shop online for the first time every year until 2015. New Internet users will certainly push e-commerce forward, but so will the individual consumer’s level of familiarity with online shopping. The more experience people have with Internet shopping, the more they spend online.

By 2015, the majority of today’s 145 million online shoppers will be “experienced,” and more consumers overall will have entered the ranks of the middle and affluent classes (MACs), resulting in a sharp increase in the amount of money that each shopper spends online. Average annual online spending will have nearly doubled to RMB 6,220 per shopper, close to the $1,000 (RMB 6,500) average in the United States today.


 The more experience people have with Internet shopping, the more they spend online 


If readers remember only one thing…

e-Commerce has particularly energetic potential in China for a host of reasons. Firstly, its massive geography hampers the effectiveness of physical retailing. The country’s coveted middle class affluents are quickly expanding beyond the biggest cities, meaning that firms must constantly broaden their reach. Physical retailing can also prove expensive for brands as real estate prices soar and complex distribution structures force lower profit margins at the hands of middlemen. Selling directly to consumers on the Internet circumvents both of these costly outlays.

The study also suggests that urban and middle class Chinese consumers prefer to be multichannel shoppers. In a few years, multi-channel shoppers will make up nearly half of urban China’s consumers (accounting for around 80 percent of GDP). It is therefore not enough for companies to focus exclusively on consumers’ online or offline shopping habits.

Going forward, e-tailers must understand that experience remains a major driver of online spending, even when shoppers’ income levels are factored in. Affluent shoppers with little e-shopping experience can spend up-to 60 percent less than emerging- middle-class shoppers, who have accrued more experience shopping online. It typically takes affluent online consumers four or more years before they become super heavy spenders.





Luxury Society invites members to download Boston Consulting Group’s full report regarding The World’s Next E-Commerce Superpower. Please click here to download.


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Boston Consulting Group is a global management consulting firm and the world’s leading advisor on business strategy. BCG partners with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises.

www.bcg.com