E-commerce is the fastest growing method of commerce in the world, with China being by far number one. As a matter of fact, the country alone accounts for 40 percent of the total transactions worldwide. In order to give an idea of the importance of e-commerce in China, this number represents all transactions from the United-States, Japan, France, Germany and the United-Kingdom combined. China became the “Mobile First Nation” with 800 million people using the internet and 98 percent of them accessing it through their mobile phone last year. This rapid adoption of mobile commerce is in part due to its convenience. Furthermore, it has the advantages of broad reach and user mobility. Where most countries are still focusing on offline to online services, China is already at the next level: O2O services.
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What is O2O?
O2O, also known as online-to-offline, is the possibility of requesting services and goods online and getting them satisfied offline. Something qualified as very convenient especially for Chinese consumers who do not consider having enough free time outside of their working hours. Ordering a meal online while being in public transport on their way home or even calling a repairman to fix their iPhone’s screen while staying at work is something very common in China. We can compare the differences in China with the rest of the world. In 2017, seven percent of Chinese admitted shopping on their smartphones at least once a day, 45 percent once a week and 25 percent once a month. In the rest of the world, those numbers are respectively three, eleven, and 19 percent. With a number reaching 582 million online shoppers in 2018, the O2O market is a promising opportunity
Convenience – the driver of O2O services
The main driver behind O2O is mobile commerce. Indeed, the fast improvement of wireless networks, the large market of new internet users, the high adoption rate of QR codes and the fact that more Chinese people own a smartphone than a traditional computer offer a suitable environment for the development of online services. This adoption of m-commerce is in part due to the easiness and trust in online payment. From 2015 to 2016, online payments were multiplied by four. More than 92 percent of Chinese mobile internet users used mobile payments in 2018 thanks to Wechat Pay and Alipay platforms. These third-party mobile and online payment platforms provide users with a convenient and fast mode of payment.
O2O market in China
Millennials are the driving force of O2O services. Also called “The Want Generation”, Chinese millennials accounted for over 400 million consumers in 2018. They have the highest adoption rate of new technology, highest smartphone ownership, highest incomes, and lowest saving rates. Furthermore, Chinese millennials perceive fewer risks of shopping online than previous generations. Thus, are willing to consume and spend more than their counterparts. Millennials favor O2O services over traditional ones because of their convenience. Indeed, not only do they provide functionality and are time-saving, but they are also part of social media and popular among users. 29 percent of Chinese consumers use social media to research brands and products.
Wechat, in addition to being a messaging application also provides O2O services on its platform such as booking a movie ticket or calling a shared-ride. Another example to give an idea of the importance of O2O services in China, 73 percent of Chinese female millennials have ordered food online in 2018. Even though tier one and two cities were the main drivers behind the growth of e-commerce, numbers have changed. Indeed, since 2015, third and fourth-tier cities have a lower e-commerce penetration rate but 74 million more online shoppers than first and second-tier cities. Thus, the potential for new entrants and e-commerce growth.
A fierce competition
Many firms try to grab this opportunity and implement O2O services in China. However, competition is fierce and unfair. Indeed, when new entrants access the online market, competitors are not scared to lower their prices or even offer incredible discounts to the point where they are actually losing money. Their goal in doing so is to kick out other companies from the market and be the last one standing. One of the most recent examples would be a ride in a Didi car costing only 2 RMB (less than the subway) when its rival Meituan entered the shared ride O2O market. Another current example is the surge of online bike-sharing companies such as Ofo.
Eight of them opened with a total investment of more than 200 million euros. Even though these companies are focusing on pushing away the competition thus, not making a profit yet, they are collecting a massive amount of data. Today, only two are still competing. Despite the fact that competition is rude with firms burning capital to be the last one standing on the market, the O2O services are seen as the next big thing in digital China and investors are numerous.
The result: Changing consumer habits
Consumers engaging with O2O services expect convenience, lower prices, and up-to-standard customer service quality. Facing lower prices, Chinese consumers consume more thus, increase their spending online. 77 percent of consumers said that their expense on travel increased since they started using O2O services. The O2O services that are most successful in term of market penetration are namely traveling, dining and mobility services.
Mostly consumers from first and second-tier cities use O2O travel services and they tend to pay more for value-added features such as ticket guarantees. They expect traveling services to be cheaper than traditional traveling agencies. As a result, O2O services put pressure on hotels and airlines. Trip.com originally called Ctrip is one of the most famous O2O traveling services.
As for dining services, they are increasing rapidly thanks to its convenience and many discounts such as Ele.me or Hema. Due to many scandals related to food safety in China, Chinese consumers are more and more aware of health-related issues. Millennials are even willing to pay a premium when it comes to dining services. Contrary to O2O traveling services, the price is not the main reason for pushing consumers to purchase.
31 percent of mobile online shoppers said to frequently use O2O mobility services such as Didi and Ofo. As a result, consumers use their own transportation mode less often than they used to.
The success of Florencia Village
With online retailers such as Tmall and JD.com attracting an important amount of customers online, shopping centers and malls are not what they used to be. Brands and brick-and-mortar retailers are facing difficulties bringing traffic in their physical stores. However, some are doing quite well. In today’s connected China, it is necessary to use e-channels to reach consumers. It is the case of Florentia Village, a luxury outlet mall designed by the Italian retail RDM Group. It can be found in six different locations in China including Shanghai, Hong Kong, and Guangzhou. The outlet mall adapted its strategy to the latest digital trends by using e-commerce and Wechat famous mini-programs.
It might seem weird from an exterior point of view for a physical mall to develop an e-channel as online retailers are already crowded. But in the case of China, it is normal. Indeed, it is not rare to see Chinese shoppers inside the physical store on their phones comparing the store prices with online ones. Since Chinese shoppers are already using e-commerce while being in the physical store, the outlet mall might as well establish a presence online. Its goal is to convert online traffic to in-store traffic.
Its e-commerce platform was launch in February 2018. In September 2018, it also launched its official Wechat mini-program. This last one is organized by the city where the Florencia Village is established. Once the city is chosen, users can access information of the current outlet mall sales and events. They can also easily move inside the mall thanks to an interactive map and collect fidelity points with their online membership program. The most attractive feature is the fact that every time users open the Wechat mini-program, they automatically win fidelity points to redeem gifts or gift cards that they can share with their Wechat friends. The result: 1 million page views and 100 000 likes within three months. Florencia Village’s goal to bring online traffic offline was reached with 240 000 online visits and 20 percent of them converted into offline shoppers.
How to expand your online services offline?
Create a Wechat mini-program
Wechat mini-programs are embedded apps that do not need to be download offering the advantages of being lightweight. Their goal is purely to focus on offline services. Advertising, attracting followers and such is not favorable to Wechat mini-programs. Indeed, they are strictly content driven meaning they only appear if a situation requires it. Push notifications do not exist with this feature. They are considered to be the best tool for brands looking to develop their O2O services in China.
Take advantages of QR codes
QR codes are well adopted in China. From the bus station to your five-star hotels, you can find them everywhere. Wechat and Alipay use them as a mobile payment system but you can find QR codes for multiple other purposes in China. They combine both offline and online services. Wechat mini-programs can be accessed by QR codes.
GENTLEMEN MARKETING AGENCY
Gentlemen Marketing Agency is a digital marketing agency based in Shanghai. We are specialized in the development of marketing strategies for companies seeking to establish or reinforce their presence in China. If you wish to know more about O2O services, please contact us.