Fast Company

New Study Offers A Roadmap For E-Commerce In China

The biggest areas of opportunity for companies hoping to set up a digital shop for Chinese consumers? Price comparison, trust, and a solid returns policy.

For foreign companies looking to dip a toe in the fresh pool of Chinese e-commerce space, the waters are warm and inviting.

After all, China’s middle class will swell to about 800 million people in the next 20 years, according to Acquity Group, a brand e-commerce and digital marketing firm that just released a new report on the Chinese digital market. Chinese online consumers have a total spending income of more than $2.7 trillion. The population is widely distributed, the report finds, but the Internet and mobile penetration rates are growing, reaching 34% in January 2011 with about 457 million users.   

Acquity surveyed more than 1,000 people across 150 cities to report on the motivations and preferences that guide online shoppers in the country. Filling a gap they found in other studies about shopping trends in China, Acquity Group wanted to focus specifically on the online space. “What we felt was missing was a specific set of analytics around online shopping and specifically online shopping behavior,” Jeff Neville, VP of retail channel management and leader of the team that conducted the study, tells Fast Company.

Acquity observed all kinds of companies being stumped by the unique challenges to setting up business in the country, but it’s a space that can be tackled with the right approach. “We feel very strongly that digital is a far more efficient and powerful means of reaching this consumer base,” Acquity Group president and CEO Chris Dalton says. “In some cases even more than physical instances than you may see.”

According to the report, people in China choose to shop on the Internet most often for one of three reasons: There’s more choice in products; they get a chance to compare prices from different vendors; and, they enjoy its convenience. Price comparison is big--65% of the survey respondents said they first compared retailers, rather than heading straight to a retailer they knew they wanted to buy from.

Neville, who led the study, was surprised by the low cash amounts that people in China were spending, but he explained that part of this has to do with the fact that there’s yet to be a culture of reliability established in the online shopping space, with the existing e-commerce retailers. As a young e-commerce economy, shoppers still lack the complete trust in products that people have when buying expensive things on Amazon.com or Zappos in the U.S. As a manifestation of that, the cash amounts that people spend online tend to be far lower than sums people in the U.S. would spend.

There’s also the returns policy, or lack of it. In Aquity’s study, 59% of the responders said it wasn’t easier to return unsuitable goods to online stores--the lack of infrastructure is another symptom of how young e-commerce in China really is, despite how quickly it’s growing.

But that’s appropriate for where China is in terms of growing into the online retail space. There’s still a suspicion about using credit cards online with online security still shaping up, and a vast majority of transactions are carried through by cash on delivery. Then of course, customers are still wary about the authenticity of the items they’re buying online. “They’re attentive to the fact that if they’re going to buy an authentic pair of Levi jeans, that they’re going to get a pair of Levi jeans,” Dalton explains. China’s delivery supply chain is also in want of growth in the cities outside the bustling business centers. “Literally thousands of Tier 3 and Tier 4 cities do not have the logistics or supply chains to make products easily available locally,” Simon Cousins, the CEO of a Being PR firm called Illuminant, said in the report.

Even so, when customers in China choose between retailers, they choose for reputation of a brand as well as for quality of product and price, more so than a U.S. consumer would. So, their name and quality of service and product is something a foreign brand could do well to capitalize on. Ultimately, the biggest takeaway from the study is this: Anyone looking to market their brand in China has to be sensitive to where online shopping is in its evolution. “In some ways it’s evolving faster than in the U.S.,” Neville says. “In some respects it’s where we were in 2002.”

Nidhi Subbaraman writes about technology and life. Follow on Twitter, Google+.

[Image: Flickr user avlxyz]

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