Catering to the Mixed Need for Consumption Upgrading and Degrading Matters More than Taking Sides in the era of New Retailing
摘要： How did the Chinese retailing market evolve? What are the features of the Chinese new retailing? What should traditional retailers do to stand out?
Near the end of January, the Chinese business circle was shocked when Tencent collaborated with JD, Suning and SUNAC and invested RMB 34 billion (around $ 5.3 billion) into Wanda. Soon afterwards, it was reported that Alibaba, in response, also invested RMB 5.453 billion (around $ 858 million) in Easy Home, one of the major home furniture suppliers in China. On the surface, both Alibaba and Tencent are expanding their zone of influence; yet underneath, their similar strategies suggest that the battle in the Chinese new retailing industry has just begun.
The evolution of the Chinese retailing sector
To understand why retailers are hanging together with internet companies, we’ve got to look through the four stages of consumption upgrading and degrading in China.
a) Prior to the internet: consumption upgrading
Back then, as new products and contents were pouring into the market, traditional consumption philosophy was totally overthrown. Basically, everything was upgrading: from black-and-white TVs to color TVs, from BP machines to feature phones, from dacron to modern Western clothes, from Jiefang shoes (green, old-fashioned canvas shoes) to leather shoes and sports shoes…
b) The era of PC internet: consumption degrading
As Jack Ma posted ads at bus stations and subway stations everywhere to compete with eachnet.com, a consumption degrading featuring online shopping emerged at the same time. Since then, consumers began to be able to buy high quality-price ratio products on PCs. It was then internet-based brands such as VANCL rose to popularity.
c) The era of mobile internet: consumption upgrading 2.0
As Taobao began to be filled with low-quality and counterfeit products, consumer suddenly realized that it’s not always satisfying to buy products via Taobao. As a result, online cross-border shopping platforms and O2O fresh produce platforms seized the momentum and became popular.
d) The era of new retailing: blending of consumption upgrading and degrading
As new retailing mode is growing vigorously, instead of passively driven by social trends, consumers began to think by themselves and actively pursue products they really want. As a result, consumers ask for consumption upgrading and degrading at the same time. In other words, today’s consumers are willing to buy quality products at a higher price, but unwilling to pay for the premium price.
A case in point is NetEase. Faced with the huge competition from Alibaba and JD, by catering to consumers’ “mixed” need, NetEase registered a sales growth of e-commerce business by 156.9 per cent. On NetEase’s platform, consumers can buy quality products at a price higher than Taobao, but lower than more popular brands can offer.
In other words, to stand out in the new retailing era, major platforms have to be aware of consumers’ such “mixed” need and act accordingly. Alibaba and Tencent’s latest investment both proved their willingness to seize such trend.
Three observations of the new retailing era
As we look back at the development stages of new retailing, we can clearly draw three pieces of observation:
a) Online shopping platforms of traditional retailers didn’t really work
While the online shopping mall of BBK was officially closed in December 2017, RT-Mart’s online shopping platform Feiniu.com has also been breaking off the engagement with third-party businesses. Even Feifan.com, the O2O e-commerce platform Tencent, Baidu and Wanda planned to invest RMB 5 billion (around $ 787 million) in within five years didn’t really work out. In a word, all the O2O e-commerce attempt of traditional retailers turned out in vain.
b) Offline outlets of online e-commerce platforms proved quite successful
According to Hou Yi, founder and CEO of Fresh Hema, outlets that opened for more than half a year have already achieved profitability. Besides, member businesses of JD Daojia have also achieved a sales growth of 10 to 30 per cent, while Yonghui Superstore has already opened Super Species 19 outlets, and most of them have already become profitable. All these signs suggest that the era of upgrading & degrading has come, and that there’s still huge potential to be tapped into.
In 2018, Alibaba and Tencent will, for sure, continue to team up with other traditional retailers to seize the momentum. However, there’s quite a different between Tencent and Alibaba. Without a practical new retailing strategy and operable tools like Fresh Hema, Tencent is more keen in winning allies and acts more like a decentralized force. Alibaba, however, is more like on the defensive, so holding the position is already like winning for Alibaba.
c) Only retailers that follow the “upgrading & degrading” trend can survive
On the one hand, better offline shopping experience caters to the need of personalized shopping experience in this new era. To give consumers more direct contact and win customers, quality products also need offline outlets.
On the other hand, internet thinking is helping offline fresh produce markets provide a better shopping experience for consumers at a more affordable price. In a street interview conducted by Q Daily, quite many consumers are opting less-expensive Boston Lobster for a meal at high-end Italian restaurants.
At the same time, offline retailers that began to sell offline products online often ended up in failure. After all, it’s shopping experience that really matters. If consumers need for consumption upgrading & degrading wasn’t satisfied, any such attempt will turn out in vain.
What should traditional retailers do to stand out?
As TouTiao, Meituan&Dianping and Didi were all able to rise without much reliance on BAT (Baidu, Alibaba and Tencent), it seems that BAT’s support is already not as necessary as before. Under such circumstance, what should traditional retailers do?
a) Not 100 per cent necessary to take sides
Although monopoly often rules in the internet market, it didn’t quite work in the offline retailing sector. For online businesses, internet companies can access users through digital channels. However, for offline business, physical barriers make it impossible to monopolize the market. Therefore, it’s okay for traditional retailers to take sides with BAT, but certainly not 100 per cent necessary.
b) Catering to the “upgrading & degrading” trend is the key
For offline business, the number of offline outlets again becomes quite important. Besides, competent sales clerks have become increasingly important, since their service means a great deal for consumers in the era of new retailing. At the same time, words of mouth also matter a lot. While consumption upgrading makes consumers more willing to show off what they’ve bought, consumption degrading improves the turnover to quality products.
c) It’s no easy job to always seize the right momentum in a protracted battle
Above all, improving the consumption frequency is crucial in this new era. For example, user frequency of fresh produce and takeaway booking service can reach one to three every day. To stand out, these platforms have to further exploit user potential and increase users’ reliance on their services.
At the same time, relevant cutting-edge technologies, such as mobile payment, AI, big data and mobile internet have to be timely adopted to provide more dynamic services for users, as the need for consumption upgrading and degrading are constantly changing in this new era.
Moreover, supply chain management and digitalization degree also become increasingly important for new retailers, as they can no longer rely on online gateway traffic at much. To seize the opportunity and strike a good balance, relevant knowledges in psychology, marketing and AI needed to be applied together. Only when can new retailers meet the mixed need for consumption upgrading and degrading in this era.
In conclusion, it’s quite challenging for new retailers to maintain the dominance in the era of new retailing. As a result, they need to stay alert to customers’ needs and act accordingly. In this sense, taking sides with major internet companies is no longer 100 per cent necessary, and there’s always a chance for prepared mind.
The article is published with authorization from the author @Zeng Xiangling, please note source and hyperlink when reproduce.]
Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.