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Digital technology: sharing the retail cake or making it bigger?

Full version coming in our Luxury Insight China Q4 2015. Click to download

The peak of a long retail bonanza

The holiday atmosphere in China usually lasts three months, starting from December and peaking in Chinese New Year, which is always around February. So anyone who understands even a little bit about Chinese New Year knows the time now in China is just as the days before Christmas.

However, the digital retail platforms have brought ‘festival fever’ to the country at other times creating a much extended holiday atmosphere; beginning from November 11th the nationwide online shopping bonanza, through to Double 12, the Christmas and New Year’s Eve, quickly followed by the month-long preheat for Chinese New Year in January, peaking in early February.

During this entire period, the consumption mood of the Chinese people is stimulated as retailers on and offline promote sales. So how is the shopping mood maintained during the “long retail bonanza”? Using the e-commerce platform of Alibaba Group, the biggest in China as an example

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And their rival Tencent?

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By comparison, eMarketer estimated there were a total of 23.2 million mobile payment users in the U.S. in 2015, accounting for US$8.7 billion of consumption.

As more retailers have adopted mobile payment systems, more Chinese use the technology; we now start witnessing people lining up with their mobiles in-hand to make a payment, rather than traditional wallets and cards, whether in department stores, restaurants, supermarkets, cinemas or in taxis. To consumers, the convenience of the technology is vital, and to retailers, the quick process has brought benefits too, especially during the peak season like Chinese New Year. Although there is much talk about online shopping platforms sharing a bigger proportion of the overall retail market, mobile payment technology companies keep on growing, creating a new engagement model for all.

Double 11 V’s Double 12

The story of digital retail platforms and how they impact Chinese consumer habits starts from Double 11 and Double 12. They maybe a little confusing; in November you encourage hundreds of millions of Chinese to spend money online, and they do, but a month later you ask them to spend yet more money, and they do!

The Double 11 concept was initiated by the e-commerce site (an Alibaba company), to increase the sales of the partnering brands on November 11th each year. Two years later, Alibaba created the Double 12 concept based on the idea of the second chance to make great savings, if they missed something one month previously. In 2015 the Double 12 concept was transplanted to physical stores. Both marketing concepts were designed to drive consumers to buy on the Alibaba platform, and to adopt new technology by working closely with retail partners for mutual gain.

The sales achievements of Double 11 always exceeds Double 12 and this year created a record of $14 billion sales in a single day, but Double 12 has already changed its positioning to focus on the offline to increase offline use of Ali’s payment tool.

Double 12

In 2015 Double 12 shopping festival attracted 28 million users in 24 hours. The attraction was 50% discount offered on purchases via Alipay in partner shops, restaurants, cinemas, supermarkets and shopping malls. On the day, it turned out that 19 million of the 28 million Alipay consumers were born after 1990 which is not necessarily surprising considering their familiarity with mobile technology, but more interestingly 924, 000 users were in their fifties or older. Many of the ‘Uncles’ and ‘Aunties’ learned how to register an Alipay account on the night of December 11th in order to purchase a bargain.

A year ago, Double 12 was still regarded as simply an extension of the bigger Double 11 online shopping festival, when retailers could continue to sell those commodities left over from the Double 11, and both were considered as a challenge to offline retailing from online shopping platforms.

But this year the strategy has changed as Alipay increases the adoption of its technology by promoting increased footfall to offline stores. Supermarket Carrefour hit 100 million RMB sales in less than ten hours. Ying Yu the CEO of Carrefour China said since the installation of Alipay, their footfall has increased by 18%. The efficiency at the cashier has also improved, reducing transaction time from 1 minute to 20 seconds. 468 million RMB worth of movie tickets were sold via Alipay, representing 30% of the national sales total. One restaurant in Shanghai host 500 guests per sitting, 4 covers were served in only two hours around lunchtime.

Changing consumer habits

At the time when rival mobile WeChat payment has increased its market share, Alipay has started to accelerate its inroads into the offline market.

Because of these new mobile payment tools, the adoption of digital facilities on a phone, and to be frank, the poor and limited services offered by Chinese banks, daily life in China now has become very digital. Consumers have to a greater extent leapfrogged the use of credit and debit cards because digital is ever present and a way of life.

People can use Alipay or WeChat payment on taxis, by either scanning the taxi’s QR code or paying to the driver’s account on either of the apps. When purchasing small items in convenience stores, consumers no longer need to stand and wait for change. Even some basic snack stand owners, can receive payment to their account saving time, and there is no need for anyone to carry a wallet, cash or cards. The traditional practice during Chinese holidays of giving a red envelope containing cash and given by family members to each other and used to share good luck has become digital eliminating the envelope all together. Now a WeChat group can be created and the group members can receive a split of the money through a lucky draw.

The mobile phone is clearly replacing the wallet rapidly in China.

Retailers respond

Alibaba and Tencent the owner of WeChat using the attraction of big retail discounts have accelerated the adoption of the mobile payment technologies and as a result, more retailers and malls have been forced to adapt to the new payment model. This adoption is not confined only to China. Those in destinations overseas where Chinese tourists gather have also realized the need to engage on the same basis.

In Taiwan, the committee of the famous Ning Xia night market prepared T shirts, lanterns and banners to welcome mainland tourists to join their Double 12 festival.

And on Phuket Island, the blue signs of Ali were presented in shops, restaurants, pubs and duty free shops to show they accept Alipay and were offering Double 12 discount.

The Japanese general duty-free store, Takeya, also offered Double 12 sales to attract Chinese visitors. Mayahara the Head of the Takeya Business Planning Department said “We hope to provide the service that matches the Chinese customers’ shopping habits by introduction of advanced technology. It will not only smooth the service process, but also make them feel welcomed and enjoy the whole trip.”

Mobile technology has changed consumer habits, how many will use it over Chinese New Year?

Successful marketing is all about understanding and influencing the consumer and their purchase decisions, and in a country the size of China scalability is also essential in order to drive mass adoption of new designs and technology. Here every consumer likes a bargain because it makes them feel good, and also because the list price of products is often considerably higher than it ought to be considering the countries demographics, and consumers know this. This combination has created an opportunity for the technology companies.

Technology has played a large part in the development of the country in the past twenty years; the internet and mobile phone are commonplace, while old state controlled and ‘people centric’ businesses like Chinese banks are overly bureaucratic and slow to change, leaving a void to be bridged by a business that is able to link technology and money simply.

Welcome Alipay and Wechat payments, these mobile payment technology apps have given young people a simple way to pay for just about anything by linking it to their bank accounts via the most precious item at the centre of their lives; the mobile phone. For the retailer, the reach of the Ali and Tencent groups to hundreds of millions of consumers and the simplicity of handling financial transactions makes them a marriage made in heaven.

In the 2015 week-long Spring Festival, restaurants and retail stores turned over US $103.1 billion, an 11% growth compared to that of 2014, we will wait to see continued growth during this Spring Festival and importantly, how much will be realized using mobile payment tools.

Full version coming in our Luxury Insight China Q4 2015. Click to download


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