Average spend by Singles Day shoppers could slow: Bain

The imminent double-11 online shopping event is a landmark day for brands, retailers and consumers in China. However, as the market tries to recover from the ravages of Covid-19, brands will need to balance the compulsion to foray deeper into China with the economic reality that average consumer billing in these locations will be significantly lower than that of their big-city compatriots. 

A new report from management consultancy Bain highlights how brands and retailers are facing a year when value-conscious Chinese consumers are opting for cheaper, local labels as they slowly find their feet in a post-pandemic world. "One of the reasons for this movement to local brands is renewed consumer interest in great value and low prices arising from economic uncertainty," the report notes. "In fact, 35% of Chinese consumers surveyed earlier in the year [in another Bain & Company report] expected to be more mindful of their expenditures."

Chinese consumers also prefer familiar brands over new and exciting offerings, reversing momentum made by insurgent brands. Over 60% favour value brands over premium brands, while more than twice as many consumers want to buy new and exciting products instead of repeating products purchased.

For Chinese retailers and brands, the balance between the race to reel in new consumers in smaller cities and their smaller average billing, seems to boil down to a challenge in expanding the size of this already huge event. While single-day business for Singles Day approximately exceeds the monthly billings for American giant Amazon, some figures indicate that growth may be plateauing. 

"Singles Day 2015 saw 60% growth in the number of daily active users (DAUs) over the same day in 2014," the report states. "But as consumer penetration neared a penetration plateau, retailers quickly became a victim of their own success. By 2016, the number of new online shoppers had grown by 15%."

Instead, participants in this sale pivoted to encouraging consumers to spend more by buying higher-priced goods or by shopping from a wider variety of product categories with higher average selling prices. It worked: year on year, average revenue per user (ARPU) on Singles Day 2016 rose 20% compared with 8% in 2015.

However, competitive pressures from scrappy newcomer Pinduoduo, which offered deep discounts to bring in consumers from small towns, once again changed the balance in the last couple of years, with DAUs growing 29%, but ARPU dropping 5%, Bain notes. 

In 2020, this battle is expected to come to a head. While Bain's forecasts suggest that 40% of consumers will increase their spending this year, brands and retailers need to balance the urge to drive growth of new users with slowing growth in existing markets. 

"While higher-tier markets start to hit the ceiling on saturation, lower-tier markets continue to grow online shopper penetration as a percentage of total web users, reaching roughly 54% in the first quarter of 2020 (up from around 45% in the first half of 2019)," the report notes. "However, these new users will spend about 60% less than the average of existing users and 50% less than the lower-tier market average. Depending on the new user mix, overall ARPU may decelerate in 2020."

To manage this, Bain recommends that online platforms extend the relationship with their customers beyond the landmark day by building loyalty. One method to improve engagement is to build content around blockbuster products and measure their engagement. Alibaba asks merchants to produce short videos for 70% of their SKUs, with three to five such pieces of content for each one. In smaller cities, platforms can focus on custom-built customer propositions and use a cost-efficient supply chain to lessen customer-acquisition costs. 

Brand owners and CMOs too need to consider their engagement with consumers beyond Singles Day, the report suggests. "The best brands will establish direct relationships with the most valuable consumers, tracking success not only in terms of Double 11 GMV but also in engagement, loyalty and lifetime value," Bain's report says. "They will embrace hyperlocal options, creating a single path to consumers that optimises cost and speed, launching new products as easily in offline channels as online."

This article is filed under... Top of the Charts: Highlights of recent and relevant research