China Marketing Blog

E-commerce trends in China: How is O2O developing?

Misha Maruma — Thu, 05/22/2014 - 14:36

A shopper using a mobile to make an O2O payment

In February I looked at some predicted trends for e-commerce in China. One of those predicted trends was that online to offline (O2O) would really take off in China.

But what exactly is O2O? Why has it had a mixed press in the past few months? And how can a company use O2O as part of a marketing plan in China? I will answer all these questions in this blog post.

 

What is O2O?

O2O works by using online social platforms to help online consumers use real services. For example, Taobao is an online store similar to eBay. People browse the store and then make an order. The goods are delivered directly to the customer. Everything is completed online.

Businesses that cannot pack up and ship out their products and services are cut out of this whole process. To get a piece of the action these companies somehow have to connect with these online customers.

 

The importance of mobile payments

The huge e-commerce firm Alibaba and the biggest internet company in China, Tencent spent most of 2013 battling to claim the e-commerce space. The battleground centred round mobile payment apps.

But why was the war around mobile payment? The idea of targeting online customers and encouraging them to visit physical stores in nothing new. But the inclusion of mobile payment is what makes the scalability of the system really powerful. O2O has finally closed the loop by leveraging the power of mobile devices.

It’s not hard to argue that there is an appetite for mobile in China. 500 million of the 618 million internet users in China are mobile users. There is a massive shift in the way that the Chinese population use mobile internet. All this has come together to create an environment for O2O to flourish.

 

Different offline services

Think about a taxi service or hotel. They cannot be packed up and sent to a customer in the post. These types of services are using social media platforms to connect with consumers. I have written about the taxi-app war that was taking place early in 2014. This is an example of how O2O works in practice.

But just how good is WeChat for O2O marketing? Although the app has 350 million users it has been questioned how good WeChat and these types of networks are for gaining new customers. What can’t be questioned is how well these platforms are at bringing existing customers to offline businesses.

Four examples of companies using WeChat to stay in touch with existing customers and gain repeat business are hotel chain 7 Days Inn, courier service SF Express and retailers Shopin and Lenovo group. 

All of these companies have used WeChat to cultivate relationships with existing customers, enhancing brand loyalty and generating repeat business. A good example of this is 7 Days Inn. They have used WeChat’s public accounts function to attract 1.35 million members in six months. It now receives around 5000 reservations from WeChat and 70% of these are second-time customers.

Lenovo uses WeChat in a slightly different way. It uses the public accounts to send notifications to customers about products and promotions. These promotions are only for WeChat users. It also uses the app to allow customers to browse products at real stores and then pay with WeChat at a later date.

It is not only Tencent that is leveraging its social media platforms to help offline companies get the most out of online consumers. Alibaba, whose popular e-commerce platforms Taobao and Tmall are widely used has worked with offline retailer Intime.

Before Singles Day in November 2013, Intime Retail Group, a company that manages shopping malls around China, invited customers to come into its stores and browse items that it had listed on Tmall for the big discount day.

Customers were able to look at products, try them on and then scan the barcode with their mobile phone. This saved it in the Tmall shopping cart and customers were then able to buy their desired products on 11/11 with the discounts included.

Tencent even went one further and in collaboration with Shopin.net opened a physical store in the city of Hangzhou in April this year. The store allows customers to buy and pay for clothes and other products in the store using WeChat.

Customers can scan the barcode on the product and use WeChat to finish the order. They can then choose to take the products straightaway or have them delivered. And the icing on the cake was that customers were able to take a free cab ride to the store if they booked through Tencent’s taxi-hailing app using WeChat.

 

Bad news for O2O

As I mentioned earlier there has been mixed news about O2O in China recently. This has to do with the fact that the Chinese central bank put a halt to the use of QR code scanning as a payment method. Without customers able to use a mobile payment application such as Alipay, O2O would not be able to function properly.

However, analysts suggest that this is just a way for the Government to assert some authority for a section of the economy that is developing rapidly. Rather than let these huge e-commerce companies make the decisions, the Government has stepped in to regulate the system.

 

O2O for marketing

One of the distinct advantages of O2O marketing is easy collection of data. Measuring how many people walk into your store is near on impossible compared to looking at numbers of customers who have browsed an online platform.

Businesses have an exact idea of how many customers it attracted and what the conversion rate is per marketing campaign. With O2O commerce, businesses have a clear view of how many consumers purchased an online product because of a particular marketing campaign.

So, ultimately what can O2O mean for a business? The list below is some of the advantages that businesses in China are gaining from adopting an O2O marketing strategy:

  • More marketing opportunities and ability to attract new customers

  •  Measurable marketing achievements and transactions

  •  Direct communication with customers to be able to understand their exact needs

  •  Efficient online booking to help decrease operational costs

  •  Useful marketing tools for store expansions and product launches

What do you think of O2O as a marketing strategy? Let me know in the comments

 

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Comments

Hi Misha,

You mention early on that businesses being cut out of the selling process suffer. Wasn't this part of the attraction of on-line shopping: reducing the middlemen costs to the business, some of which would be passed on to the consumer? Lower prices being THE main decision of where to buy in China, at the cost of service/quality.

Won't either the attempt of these excluded businesses to renter the chain, or to attract them back, deny consumers the price advantages that have been enjoyed in the last 10-15 years?

Of course, consumers still have the choice to shop entirely on-line, something which they have become increasingly accustomed to, even accepting the irritation of buying clothing and having to return through the postal system, when the item is the wrong size, etc.

Interesting read.

Cheers
Tony

Hi Tony. Thanks for the comment.
 
When I talk of businesses being 'cut out of the process', I mean specifically O2O. The attraction of shopping online is indeed the fact that costs for the consumer are less, as you suggest. In fact, I'd suggest that offline businesses that can't move completely online (i.e. a taxi service) and want to reenter have to adopt the online price policies that have seen consumers enjoy lower costs over the past few years. The taxi drivers in Nanjing, for example, were charging passengers only ¥1 IF they used WeChat to book and pay for the taxi in advance. 
 
The idea with O2O is to use the advantages of the internet in a real-life space. A perfect combination of cyberspace and the real-world. 
 
Your example of having to buy clothes online is a perfect example of how O2O can benefit consumers. Imagine going shopping on a Saturday afternoon. You see something you like. Try it on. Fits perfectly. You then scan the item with your phone. It opens up an online store. You pay using a mobile wallet and select delivery. You get the benefit of the online discount and know that the item will be delivered, knowing that you won't have to return it. You can happily go for a coffee afterwards and not have to worry about carrying a shopping bag. You might even use your phone to see if there are any special deals on coffee at cafes nearby. That is the promised land of O2O. 
 
If the system worked like this do you think you'd be a convert? I know I certainly would.

Hello All!

Very interesting blog post! I agree with Misha. O2O seems to have a lot of potencial, specially for retailers. I think is another piece of the omnichannel puzzle.
About the WeChat part, there is no doubt that this platform is growing, and is growing at the speed of light.
As a fashion marketer, i’m experiencing a challenging era, where is getting more difficult to attract customers. And we know that we have to be where our clientes are, and surprisingly, they are in WeChat.
So many retailers now do almost everything in this platform, which I think is part of the O2O,
I read on Fashionbi (http://fsh.by/PL0N9Q), that a lot of brands, specially premium and luxury, have presence on the platform, and in that way, they are gaining more Chinese consumers. And although there is not a “magic recipe” to succeed in the platform, i can see the efforts that fashion brands are making in order to reach those customers, Could be this linked to the O2O? Is this strategy calling customers to use real services?
I think we will see with the time, definitely this is just the beginning of a new era in the omnichannel and the use of new mobile technologies. We’ll see how the future comes and how companies react to the new digital marketing trends.

Hi Nelly, thanks for the comment.
 
I think you're right that there is no 'magic recipe' to succeeding on the WeChat platform and that is exciting for marketers. And I also agree that the way fashion brands use WeChat is linked to O2O. For example, I have a Gap account on my WeChat and just this morning I got a message telling me of a one day sale in store at my local Gap in Nanjing. I have to go to the store if I want to enjoy the discounts. They are using urgency to draw me into the bricks and mortar store through a mobile platform.
 
Can I ask, do you currently have a presence on WeChat and use it in this way or are you just exploring the options right now?

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