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By Angie, June 18, 2010 11:39 am

While US consumers are the world’s top shoppers – on and offline – this is only the case for real products.   You’re thinking: What other types of products are there?  Well, let me tell you.  The Chinese are leading the way in the purchase of … virtual products.

So much so that research firms are estimating that the purchase of virtual goods in China reached approximately USD$5 billion in 2009 – over five times that of the United States.

In a country where there is so much fluidity between the ‘real’ and online worlds, this should not come as a huge surprise (though I have to admit, that despite knowing the power of the online world in China, I still was surprised at just how large the numbers actually are).

I do understand the concept of virtual products and virtual gifts.  After all, I’ve given others Facebook gifts in the past and have had fun outfitting an avatar.  Both of those were free.  And for me, the buck stops there.  Putting money into products that I cannot touch, taste or smell seems rather, well, impractical.  But that’s only to me and clearly, scores of other consumers see it in an entirely different light.

Now let’s take a moment to try to understand the motivations of Chinese consumers and the reasons behind their acceptance and desire for virtual products.

1. Blurring of offline and online worlds.  In the eyes of many Chinese consumers, especially Chinese youth, there is no distinction between the two.  The online world is just an extension of their offline world.  If this is the case, why should they act any differently online as they do off?  Online, they can purchase a virtual gift for their sweetie, or a trendy outfit for their avatar, or a power-up to ensure their warrior wins more battles.  Purchases are made to fulfill not only practical needs, but emotional ones as well and for these youth, virtual products satisfy their emotional needs just as effectively.
2. Chinese youth have many friends online.  A third of Chinese youth 16-29 from Starcom’s Youth Surveillance research even said they have more friends online than they do offline.  Furthermore, 43% say they’ve never met many of their online friends in real life before.  Due to this unique dynamic in China, virtual gifts then hold an even greater level of meaning and importance.
3. Anonymous escapism. In a society a little bit more ‘closed’ and where tradition and conservative values still reign, Chinese youth turn to the internet as a way to express opinions, and the image of themselves they are unable to in ‘real’ life.  Over a third of the Chinese youth we studied reported feeling “more like ‘myself’ online than I do in ‘real’ life”, and 57% said “I do not feel as much pressure from society online.”  Online, they can develop their true, desired identity, wear the clothes they would never dream of wearing offline, or buy items for their dream house.
4. Gifting an important part of Chinese culture. Gifts are a large part of maintaining guanxi (a deeply rooted idea in Chinese culture and tradition combining the depth of one’s relationship with another, moral obligation to maintain the relationship, and the idea of giving ‘face’).  Thus it is not surprising that gifting would extend to the online world, and once it starts, it will continue in reciprocity.
5. Greater interaction with friends online leads to greater need for status online. In China, being online is not a solitary activity.  Friends go to war against other friends… or steal veggies from their gardens.  If Xu sees that his friend’s avatar has the newest TurboActionMissile Gun (I’m clearly rubbish at naming guns…), he will want it too, in order to show his friends that he can afford one as well, on top of the fact that the gun probably will make his avatar more powerful.

Why else does this work?

But of course, all this would not even be a consideration if companies were not able to create these offerings, build their business model around virtual product and really create a need.  Virtual money and products on social networking sites in Asia arose partly due to a less developed online advertising market.  Unlike the West, banner ads were not as effective and click-thru rates were low.  This drove Asian web businesses to seek new ways to make money.  Innovative offerings, ease of payment (via mobile phones and prepaid cards), a la carte items (e.g. avatar costume pieces), and very affordable prices have all helped drive the need and acceptance of virtual products.

For companies like Tencent (operator of QQ instant messenger and social networking site Qzone), virtual goods have become their primary source of profit.  In the first half of 2009, the company made over $300 million in revenues from virtual goods.  Compare that to online advertising, which only drew $35 million in revenue for Tencent.

Future thinking

It is certain that virtual offerings will continue to become more innovative, and payment methods will become easier.  All this while the internet continues to spread to even more users in China.  From this vantage point, the opportunities for online goods appear limitless.  How can your company take advantage of this to stay relevant with consumers?

Another consideration might be to come up with effective ways to link virtual goods to real goods, allowing consumers to get the best of both worlds and soothing the protests of consumers uncomfortable with the idea of virtual goods they are unable to smell, touch or taste (like yours truly).

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By Angie, June 15, 2010 7:05 pm

To continue last week’s post about e-shopping (because this is a pretty hot topic and it’s not going away any time soon!), find out which city shops the most online, and which country is hoping to grab a piece of China’s e-shopping pie.

Online Shopping Boom

According to the China Internet Network Information Center (CNNIC), one out of four Chinese netizens shop online.  In 2009, China’s online trade reached 248 billion yuan ($36.4 billion USD), up 94% from 2008.  This number is expected to reach 1 trillion yuan by 2013.

From this ---> to This!

Shanghai #1 in e-Shopping

Shanghai residents took the top prize in spending the most time online AND also spending the most money there – nearly at the level of developed countries.    Taobao recently released an online shopping report that compared the internet spending of people in Shanghai, Beijing, Shenzhen, Hangzhou, Guangzhou, Nanjing, Suzhou, Tianjin, Wenzhou and Ningbo.

Shanghai consumers cashed out with 17.42 billion yuan in online spending in 2009.  In 2^nd and 3^rd place were Beijing (RMB 11.25 billion) and Shenzhen (RMB 6.48 billion).

Annual spending (May'09-May'10) power of China's top 10 e-spending cities. Source: Taobao

According to the report, in all ten cities, 25 to 34 year old consumers were the driving force for online shopping, making up 62.5 percent of the sales.

Led by Taobao

Taobao boasts an 86% of China’s market share.  With a name meaning “hunting for treasure”, they actively aid the consumer’s hunt by incorporating tools that ease the shopping process.  Taobao instant messenger is an easy communication channel for buyers and sellers and a platform to foster trust and answer questions in real-time.

The company has also been serious about establishing itself as a credible enterprise and has spent 100 million yuan (15 million dollars) in an ad hoc campaign to proclaim its zero tolerance policy for fake goods, closing all online stores selling fake products.

Large retailers getting on board

The power, reach and influence of Taobao cannot be denied.  China’s biggest Xinhua Book Store has an outlet on Taobao and in April, Japan’s UNIQLO also opened a shop.  Even airline company, China Eastern, will soon set up an online ticket store on Taobao.

Taobao’s strategy for the next year is to facilitate the business to consumer platform, making it easier for companies to sell products online to an established (and growing!) consumer base.

Japan getting in on Chinese online shopping

The fervor and passion of China’s e-shoppers is not waning any time soon and others have picked up on this trend, including Japan’s biggest online shopping mall operator, Rakuten (sidenote: they’ve got a great tagline – “Shopping is Entertainment” and their 2009 revenues exceeded US$3.2 billion).  Partnering with Baidu, Rakuten will begin operations on China’s largest online mall in July.  This enables Baidu to start playing in the e-commerce space and focus on a B2C strategy.

Rakuten's English Landing Page

Online Shopping Addiction becoming a real concern in China

A group of e-shoppers have identified themselves as being members of the “internet shopping tribe”, also called wang gouzu (网购族), leading to online support groups for e-shopping addicts.  In one of these groups, an “addict” described the thrill of finding something online priced cheaper than retail and getting a ‘high’ when pressing the purchase button.  According to Sina.com, Chinese shoppers each spend an average of RMB 10,000 per year online.

What’s next?

With the sheer size of the Chinese population, their rapid adoption of the internet and the vast untapped market (China’s internet penetration rate was 28% as of January 2010), and the advancement of delivery routes into lower tiered cities, China’s e-shopping space is an area companies are not taking lightly.

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By Angie, June 9, 2010 12:40 am

Online shopping is a big deal in China.
According to the China Internet Network (CNNIC), 632.9 million people made online purchases last year.  In major cities like Beijing and Shanghai, 40% of the online population will often buy products online.

We saw it in our mom research.  We saw it in our youth research.   In this post, I’ll explain the concepts of Tuangou, Shike, tier differences in e-shopping amongst youth, and also the newest form of group e-shopping in China.

Tuangou
Tuangou (group shopping) started offline; with consumers meeting up at stores in large groups to add physical weight to their cause (that’s why it is also referred to as mob-shopping).  Next, it became a pure online-shopping experience, where consumers banded together with others they met via forums. The initiator seeks out the vendor and negotiates online on behalf of those who raised their virtual hands to purchase the product. The idea spread to youth who were beginning to purchase more and more online. One Youth Surveillance respondent told us that she recently joined an online group whose objective was to gather 20 buyers so that they could get a discount buying jewellery with a Taobao seller.

e-Shopping is not only about transactions
It’s about experiences!  It’s about teaching and learning, reviews and entertainment.  So much so that even Taobao has incorporated a new video component service.

Tiered differences
Through Lower Tier Youth Surveillance, we also saw tier differences in the way youth shop online.  Naturally, tier one youth are the most e-shopping savvy and will seek out ways to save money, such as tuangou.  Another concept called Shike has become popular amongst this group – it is a concept that enables consumers to test products before launch and send in their product reviews, thus involving them in the process and fueling their brand sirening.

Tier 3 youth on the other hand, view e-shopping sites as a platform to learn about products they don’t have access to and they view sites like Taobao as entertainment.  Even students who were not on Ren-Ren or Kaixing 001 were on Taobao and they would cite it as one of their favourite sites, despite not making any purchases.

Tier 3 youth view online shopping sites as entertainment

What now?
Within the past few months, an even newer group e-shopping concept has blossomed in China.  The premise of it is that through a site, a retailer offers a special discount on a product/service on the condition that it will be honoured if enough people sign up for the discount or purchase that product/service in advance.  Basically, it takes the “old” format of posting on a BBS/Forum: “hey guys, anyone else want to buy this lamp too?  Let me know and we can see if we can get a group deal”, to something organized, efficient and controlled by the retailers themselves.

This format has grown rapidly.  According to the China Daily, even during the past two months, sites offering this kind of service have ballooned from a mere handful to over 400, with Taobao and even Kaixin001 launching their own version of group buying websites.  Other sites include: Meituan.com, Lashou.com,  and ftuan.com.

Ftuan.com and Meituan.com: Lower left hand side shows the number of participants still needed to achieve the group discount.

Chinese consumers are really serious about taking their traditional practice of bargaining, online.  Are you keeping up with them?

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