The first-generation Apple iPhone is a great example of a product that both disrupted and leapfrogged an entire industry. By providing a great user experience and integrating multiple capabilities, such as Internet access, apps, music, and telephony, the iPhone completely changed the mobile communications industry.
Today, the term “leapfrog” is being used to describe the digital progress of China. China has leapfrogged traditional tactics in the retail space, such as brick-and-mortar stores, and, for the most part, gone straight to digital.
Mobile marketers, why take note of China? Because, in many ways, its businesses are becoming the new leaders of the Internet revolution. In fact, “If China continues to develop the most robust e-tailing markets in the world, it may create a successful example of leapfrog growth, overtaking western nations in the move to a more digital and efficient retail market … China may have largely sat out the 19-century Industrial Revolution, but today it is poised to become one of the leaders of the 21-century Internet revolution,” according to the McKinsey Global Institute (MGI) in “China’s e-tail revolution: Online shopping as a catalyst for growth.”
Historically, businesses that failed to make the transition to digital floundered. And I would argue that those that don’t make the transition to “mobile first” may even find themselves along the paths of Borders and Blockbuster: out of business.
In part one of this series, I covered some of the contextual influences in China and its G2 consumers. In this post I’ll focus on China’s digital retail (e-tail) landscape. With this series, I hope to encourage mobile marketers to begin to think like these mobile disruptors in China. What I mean is this: What if you couldn’t set up a brick-and-mortar store? How would that impact your marketing strategies and practices? How would you begin to think differently about digital and mobile marketing?
E-Tailing In China
First, how do you define e-tailing? MGI explained: “E-tailing–which encompasses online sales to consumers by merchants of all sizes” often fills the gap in sales where there is a lack of brick-and-mortar stores, as in the situation for small- and medium-sized cities in China.
As MGI noted, China is unique in that its retail is “coming of age in the midst of the digital revolution.” Like a child forced to grow up too fast because of an absent parent, China does not have the opportunity, or luxury, to be “parented” by traditional brick-and-mortar stores and then slowly integrate online channels, eventually expanding to mobile. China is going straight to digital and mobile.
This leapfrogging phenomenon is particularly found in small to midsize cities. MGI analyzed spending patterns in 266 Chinese cities and found that e-tailing is strongly impacting private consumption in smaller cities because of their general lack of “compelling physical retail offerings.”
How Chinese Consumers Use Mobile
Chinese consumers are online and mobile shoppers. As reported by the Cornell Current, “According to a PWC survey, of the 75% of Chinese consumers who make weekly purchases online, 77% of them make these purchases from mobile devices. Moreover, 86% of respondents claimed they used social media platforms to gather information about brands for to make direct purchases. The new Chinese middle-class has shown a much greater affinity for online shopping than U.S. consumers have.”
Clearly, Chinese consumers are using their mobile phones to buy products and services. They’re also using social media to research brands and products. In addition, Chinese consumers are streaming video content on their mobile phones. In “China’s Digital Transformation,” MGI noted that in 2013 approximately 50% of China’s population “were using mobile streaming” to access media and entertainment content.
In just a few short years, Chinese mobile use has come a long way. For example, in 2011, “mobile commerce (purchasing via mobile phone) [was] not yet a significant phenomenon in China,” according to MGI. “It accounted for only 1.9% of the e-tailing market (approximately $2.2 billion).” However, just one year later, Chinese mobile commerce hit $8.7 billion, “representing about 4% of the e-tailing market.” That rapid and significant growth will only continue to rise. By 2020, McKinsey estimates that “China’s e-tailing market will reach $420 billion to $650 billion.”
Why the rapid rise in mobile use and mobile consumerism? What factors are creating this phenomenon? To answer these complex questions, let’s take a look at the profile of the typical Chinese consumer.
China’s Urban, Mobile Population Is Getting Richer
The average Chinese consumer is increasingly urban, increasingly mobile, and increasingly middle class.
The MGI report “Meet the Chinese Consumer of 2020” noted: “The Chinese are certainly getting richer fast: per household disposable income of urban consumers will double between 2010 and 2020, from about $4,000 to about $8,000.” In China, smartphones are not yet everywhere as they are in the United States, but they are getting there. China’s smartphone penetration rate is expected to exceed 50% by 2018.
As I wrote in the first part of this series, the middle class is growing: “An additional 200 million people will enter the middle class by 2026 joining 300 million who have done so in the past 30 years.” So while this consumer class is experiencing population and income growth, they are also increasingly prone to use their mobile phones for shopping: “The ability to spend online is allowing Chinese consumers to spend more.”
Consider How Your Organization Might Leapfrog
As marketers in the West, we have experienced both the opportunity and the challenge of operating brick-and-mortar storefronts first and then following with digital storefronts. What if we took a lesson or two from China’s leapfrogging, and we did so, too? In other words, let’s glean some ingenuity and innovation from China’s e-tail economy and begin to think through how we might apply some of these practices to our own organizations.