If you’re selling online in China then the conversation will inevitably revolve around Taobao and Tmall. Taobao is one of the world’s top 20 most visited websites. Taobao has 83 per cent share of the C2C market and Tmall 51 per cent share of the B2C market. There’s no argument; consumers love both Taobao and Tmall.
But why? Well, invariably, it’s where they can find the best price. A large number of sales on these platforms take place around e-commerce promotional events such as 11.11 and 12.12. A large percentage of a brands online sales therefore are dictated by a few days of the year, where the promotional weight is likely to be high, putting a huge amount of pressure on a brand to succeed on these days but also on a brand’s margins.
It is a well-known fact that merchants who compete on price are always at the mercy of their competitors and in this fiercely competitive market you will always find someone willing to take a short term hit on price for a longer term gain. The amount of sales concentrating around these intensely-focused selling events, coupled with increasing costs in supporting these sales in terms of advertising, technical fees and commission, creates a difficult world where merchants can find it hard to thrive.
The opportunity however is too big to be ignored and it will be the advertisers that are able to differentiate themselves and understand their customer needs better than their competitors that succeed. It will also come down to clever e-commerce strategies around pricing and maintaining sales throughout the year and not just during highly promotional days. Finally in China it will be an important balancing act between the need for market share with profit.
A safe environment for brands
Throughout its recent history, Alibaba has had some questions raised over the amount of fake or counterfeit good available on their platforms. Taobao was listed as one of the ‘notorious markets’ (for selling counterfeit goods) by the United States Representative Office four years in a row. Li Guoqing, the co-founder of Dangdang, stated in 2009 that counterfeit transactions amounted to roughly 70 per cent of all C2C platforms' volume of business.
Tmall (previously named Taobao Mall pre-Jan 2012) was launched to satisfy the demand in China for guaranteed authentic, brand-name products. The barriers for a brand or retailer to enter are higher, requiring a large security deposit (which is lost if any infringement occurs), presentation of business and tax certificates and brands are required to pay ongoing technical fees. In a legal sense however, Tmall still belongs to the category known as ‘network service providers’, meaning there is little difference in terms of what they would legally need to do to protect a brand between Taobao Marketplace and Tmall. However, with higher fees comes more audit obligations and Tmall, along with Alibaba Group, have been very proactive in improving technology to filter and identify infringing product information. Indeed, their collaboration with the Chinese government and law enforcement officials and over 1,000 brand owners has resulted in the prosecution of some major counterfeiting operations.
In December 2012, Taobao was removed from the United States Trade Representatives’ list of ‘notorious markets’ (for selling counterfeit goods) and recent big brand names such as Apple, Burberry and Coach have been added to an increasingly long list of high profile international brands with Tmall shops. Tmall and Taobao have been cleaning up their acts and today represent a safe environment in which to sell official products.
Data: speculate to accumulate
The amount of data Alibaba group have on both brands and users alike is colossal. With about 500 million registered users, 60 million daily visitors and 48 thousand items sold per minute, Alibaba’s Taobao must have the largest shopping database in China. So valuable in-fact that the current planned IPO has run into difficulties due the ability to forecast, using this data, China’s future economy.
TMall have recently announced that reward points collated online can be used offline, highlighting the company’s strategy to boost loyalty and close the online-to-offline loop. A further indication of this is Alibaba’s recent investment in Intime Retail, one of China’s leading department store operators, which will give TMall access to their offline inventory product database.
It is no surprise therefore that brands are also nervous about starting a TMall store as the data collated about its own products and customers is also being stored and used by a greater power. However, by looking at the counter argument there is also a lot of information to be gained and those brands that can leverage this will understand their customer’s purchasing behaviour much better than those that choose not to.
There are a number of factors for any brand when considering a Tmall shop. Is it safe? Is it good for business? What happens with my data? But can a brand live without such a huge part of the e-commerce landscape? One thing is for sure, there is a large shift happening away from C2C platforms such as Taobao and into B2C environments like TMall. C2C sales in 2011 represented 75 per cent of all online sales and this is set to decrease to 48 per cent in 2017 according to the China Internet Economy Report 2013. In the B2C market, Alibaba are not as dominant, with TMall having 51 per cent market share vs Taobao’s 83 per cent of C2C.
In the B2C market other opportunities exist therefore, including JD.com having 23 per cent market share and other specialist platforms, depending on the vertical, becoming important. Finally, there is still potential for independent merchants in China. Independent merchant’s only represent roughly 10 per cent of the e-commerce market compared with 76 per cent in the US. As the China e-commerce market matures and consumers become more comfortable buying online, promoting and managing a brand owned store will allow merchants much more control, higher margins and in the longer term perhaps a more sustainable business model.
Sam Holt is VP at Perfomics China.