To operate an Ecommerce store on a China marketplace it is necessary to appoint an authorised agent, commonly known as a Trading Partner (TP). TPs operate stores on platforms like Alibaba’s Tmall and JD.com.
They exist in their hundreds, and global brands tend to focus on securing a TP as quickly as possible once the decision has been made to enter China and launch online.
Indeed, it is often the pro-active outreach from TPs looking to drum up new business that serves as the catalyst for many international brands considering China. With hasty decision making and often little research into alternatives, it is unsurprising that many such relationships quickly prove unrewarding and unsatisfactory.
In the work Hot Pot does with clients to overhaul and optimise their China presence, tales of stagnating TP relationships are all too common.
In this article, Head of Commercial Strategy, Adam Sandzer looks at the common reasons behind these failed partnerships and when exactly brands should consider a reset to drive better results.
In reference to our earlier blog article “Mastering Ecommerce Partner (TP) Selection and Setup for China”, far too many brands rush into a quick decision without enacting appropriate due diligence.
Primarily, brands need to be questioning potential partners’ operational capability, marketplace relationships and brand relevance before making their choice. The first two are fundamental but without appropriate category expertise and genuine interest in your brand it will prove very hard to build a successful long-term relationship.
Too many times, a brand signs a TP contract, commits service fees, commission rates and marketing spend, only to discover very quickly that they are not the right partner - lack of brand understanding, apathy from a TP’s team when a brand or product is not an immediate category hero and poor two-way communication across time zones are often cited as challenges. When this does happen, extricating from a TP relationship can be a long and painful process incurring legal fees, all the while potentially harming the brand’s long-term prospects in China.
Hot Pot Recommends: Enter the decision making process with a 10-year TP relationship in mind and take time to analyse all options. A thorough selection process that considers multiple partner options and gives benchmarked assessment for your category will save you time and money in the long-run and give you the best chance of long-term success.
Aside from partner selection, another common pitfall is getting the setup wrong. Once again, time is of the essence here - do not underestimate what is required to get the relationship up and running.
It’s vital to establish timelines to launch, understand respective roles and responsibilities and align on ways of working. Commercial terms need to be established for long term mutual wins. If one party is making losses when the other is seeing significant gains, things can quickly go south.
As an example, new China market entrants are typically highly attracted to buy-sell versus traditional TP operational models. This means all the stock risk and logistics are carried by the TP, as well as store operations and marketing budget. However, if the buy price is high, the TP rapidly gets into losses. They may tolerate this during the first year, but a brand may experience push back and a lapse in commitment from the TP in their second year.
Likewise, with a TP service model, too many brands underestimate the costs associated with operating a Tmall or JD.com flagship store. It’s important to run the numbers first and understand all the variable and fixed costs as outlined in the article “China Market Entry: Behind the Headline Numbers”.
Hot Pot Recommends: Establish the relationship in the right way from the outset and ensure that both parties are invested to the right degree . Performance incentives and longer term contracts are useful levers.
The most obvious sign of a challenge is when sales performance does not meet expectations. If short term or seasonal, this can typically be resolved with a committed partner who is willing to collaborate and find constructive solutions. The telltale flag for a weak partnership is when such conversations end in finger pointing.
It’s very common for TPs to ask for more or different products, new packaging solutions, lower prices and greater incentives to use for promotion. In some cases these requests are based on deep local market insight, are valid and hence should be considered, however weaker TPs may jump straight to these requests before exhausting the many other levers that can be used to drive improved performance. How is in-platform marketing being spent to drive traffic? Has user experience on the store been optimised for conversion? If you can’t get clear answers to these and related questions then your partnership may already be on shaky ground.
Aside from sales, it’s important that your brand is being presented in an appropriate way. In our experience, while TPs are required to be operational powerhouses, they are rarely well versed enough in brand building or brand guardianship. The appeal of a “one-stop shop” leads many brands to put all marketing in the hands of TPs, however leaving China branding decisions in a TP’s hands can be a dangerous game that often leads to equity erosion.
Lastly, a word on data. Like any market, Ecommerce data is critical to strategic decision making, however despite the plethora of data available from Tmall and JD, we have seen many cases where TPs are slow or not forthcoming with key reports around store performance. Constant communication with TPs is vital and when this slows then there is trouble ahead. Data is absolutely accessible and when a TP refuses to share or says it’s not available then there’s a good chance something is awry or issues are being glossed over.
Hot Pot Recommends: Ensure you have access to data and weekly performance reporting contractually from the outset. Encourage constructive and positive versus defensive and negative communication. If you start to experience the latter act quickly to understand if the relationship is potentially turning sour long term. If you ever feel that key information is being kept from you, make sure to challenge this directly and get advice from others that know what best-in-class reporting looks like.
Changing TPs or exiting the market can be painful and expensive. Ideally you want to fix things with your current TP and to do that it’s important to get to the crux of the issue. This usually revolves around weak operational ability and team allocation. If it’s the former it is worth understanding the TPs point of view and if practical, adjusting commercials to be more attractive for both sides. If the latter, adopt a demanding stance on the team you want to see working on your brand.
Ultimately if the TP refuses to engage fully on these matters and continues to be evasive, defensive and negative over an extended period, it’s time to move on. While the short term time and cost can be painful, the long-term damage of persevering with a soured relationship will inevitably prove even more costly.
Hot Pot Recommends: If constructive feedback doesn’t work over a 3-4 month time period don’t be afraid to cut your losses and re-set for long term success.
Do everything you can to build and maintain an amicable relationship with your TP. They operate your store and represent your brand within the ecommerce ecosystem, they have all relevant customer data and they may even own stock. In a bitter break-up, these are dangerous variables to lose control of. Ideally on exiting, you want them to happily hand the keys to the store over to you or a newly selected TP, pass on all the customer data and not feel compelled to dump stock or sell it at negative value.
A seamless transition is challenging but tactful communication and in certain cases beneficial financial arrangements can ease the process. Appoint a skilled negotiator with specific TP expertise to handle the break-up discussions and lean on the goodwill of the platforms and your new TP for support.
Often it may be necessary to start afresh, allow the previous TP store(s) to peter out and create something new. Have confidence that your loyal customers will find you again.
Hot Pot Recommends: Attempt a smooth transition but be aware that it might not be straight forward or fast. Keep an eye on the long term and don’t be afraid to start afresh with a new TP and store when you are ready to move on.
All brands hope to secure a TP partnership that sees stable growth across several years. Unfortunately, the reality can be rather different, with TP relationships being cut short at considerable expense. This outcome can be avoided from the start with the right processes in place to safeguard your brand as well as a deeper awareness of potential red flags.
Being prepared and armed with best-practice from other experienced partners will enable you to tackle possible challenges with confidence, or act quickly if you need to cut your losses and start afresh. Resetting your TP can appear daunting, but experience and knowledge will equip you to be more profitable in the long term.
For more information
Hot Pot China’s commercial team has extensive client-side experience in managing TPs. We also hold relationships with a wide range of tried-and-tested quality TPs from over a decade of helping brands succeed in China. We offer a rigorous end-to-end TP selection process, as well as TP setup and TP management services.
Get in touch with a member of the Hot Pot team today to understand how we can help your TP sourcing or reset needs.
Image source: JingDaily