The Role of Offline in China's Digital-First Market

The Role of Offline in Digital-First China

6 minute read

By the Hot Pot China Client Team

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Hot Pot’s CEO and Founder, Jonathan Smith, recently spoke at the event Building Brand Value with China, alongside Kerry Lee, partner at Squire Patton Boggs and Richard Lim, CEO of Retail Economics. 

A Challenging Retail Environment

Richard Lim began the conversation by contextualising the current strains on the retail environment in the UK. He discussed a variety of factors that are increasingly putting pressure on profitability, including higher competition, idle yet expensive real estate, lower margins, and more consumer choice.

Jonathan Smith then contrasted the UK with the current retail environment in China. In China retailers are ahead of the curve and the retail landscape offers a view of how UK retail might look a few years ahead.

Key points are summarised below.

In China, online is booming. The market accounts for more than 60% of online sales globally and will eclipse $2 trillion in ecommerce sales by 2023. Compared with the previous year, online retail sales in China surged 17.8% in the first half of 2019.

Yet the route to success is less clear. It's for this reason that ‘cookie cutter’ approaches, where strategies and tactics are transplanted from Western markets to China, lead to failures that negatively impact brand perception as well as the bottom line.

Chinese consumers also shop differently. More than 1 billion consumers regularly access combined social media and ecommerce apps like WeChat or Xiaohongshu, and 80% of all ecommerce transactions now take place on mobile.

 

If digital in China is so great, why do offline at all?

Ecommerce in China accounts for 35% of total retail sales, signifying that more than half of the retail purchases in China are still made offline. For comparison, ecommerce in the UK accounts for 20% of total retail sales.

A digital-first approach allows global brands faster speed to market, more agility when scaling, more data to test and learn, and more predictability in client acquisition costs. Yet brands that focus exclusively on online often start strong, but then face stagnant or declining sales, rising costs, and slowing innovation.

There are opportunities for brands to develop offline retail, but traditional strategies and metrics frequently lead to costs that don’t justify the return. Brand leaders must think differently about offline in China, in terms of how they account for the cost, how they plan and execute offline, and how offline activities integrate with their digital-first strategy.

There is commercial value in offline experiences. Integrating a well-planned and well-executed physical component with the digital user journey can further accelerate brand awareness and sales growth. It is precisely for this reason that Hot Pot advocates a digital-first, rather than a digital-only, approach.

The primary goals of any offline component should include:

  • An experiential element that brings the brand and its ethos to life;
  • A shareable element that creates cut-through in a crowded marketplace; and
  • A conversion element, either on site or in capturing data and inspiring action at a later point in time

 

How do brands make offline cost-effective, yet still impactful?

The retail paradox is that for many brands, high-traffic areas carry long-term burdensome levels of rent that eat into bottom lines, whereas more affordable real estate is plagued by reduced footfall. Yet offline has become less about a transactional purchase and is instead focused on experience, which encourages digital conversion at a later point.

With legacy real estate issues, UK retailers may struggle to re-purpose space to an experience-led model. However China represents blank canvas with willing and forward thinking landlords/developers, hence many businesses in China have been able to build experience into their retail presence from the outset.

Physically interacting with a brand drives affinity and loyalty, promotes conversation through social media and word of mouth, and encourages more frequent and higher-value purchases. As such, offline touchpoints are increasingly being viewed as media channels that form part of the client acquisition cost. They should also therefore be included in attribution calculations as a vital part of the purchase journey.

 

Experience is King

Zara is a household name in China, with more than 120 stores. To take on China’s homegrown competitors and outpace its global rivals, Zara has become a forerunner in O2O innovation. Their Shanghai store could easily be mistaken for a luxury-urban boutique. More art installation than traditional retail, the store features sparse, carefully curated items, rather than endless uninspiring racks.

The power of the experience is in the detail. Each product is equipped with a QR code tag that enables the customer to order their size to be delivered directly to a waiting changing room. Customers can then purchase items directly with WeChat Pay and either leave the store with their purchases in hand or have them shipped to their home within 24 hours.

Consumers no longer face long queues and can enjoy a hands-free shopping experience.  Zara has built a new age shopping experience that simultaneously captures data into their CRM, such as sizing and product preferences, to facilitate digital retargeting.

 

Collaboration

Shiseido recently partnered with WeWork Labs in Shanghai to open its first Innovation Hub in China. The Hub connects the company with local customers, and as such, is open to consumers as a community space.

Sheiseido invites customers to join them on a ‘个性化旅程’ (Personalization Journey). This multi-purpose space offers makeup tutorials, new product trials, and skin tests using Augmented Reality technology. Consumers can then make purchases directly from their WeChat official account.

Offline collaborations such as these offer brands the opportunity to generate direct engagement with a relevant and meaningful audience without a long-term commitment to ongoing offline costs.

 

Small Footprint, Big Impact

Brands must also view physical experiences not as permanent installations. Pop-ups, kiosks, events, and collaborations can make the same impact without the cost of always-open stores.

Kiehl’s recent launch of its avocado eye cream is an excellent demonstration of a brand getting this right. In the corner of Parkson Mall in Shanghai, Kiehl’s installed an automated product sample kiosk, making a big noise with a small retail footprint.

In exchange for following the Kiehl’s WeChat account and sharing their data with the company, customers receive a free product sample dispensed directly from the kiosk. With the sample in hand, they are immediately served information on their phone about product ingredients, benefits, how to use, where to buy, and how to share with friends.

 

In conclusion…

Brands’ strategies in China must be digital-first, but should also consider how to integrate meaningful offline experiences into their marketing mix.

  • There is concrete commercial value in investing in offline activity, so long as experiences are integrated into broader digital and CRM efforts
  • Offline can take many “lighter-touch” forms, such as pop-ups, kiosks, events, and collaborations.
  • Brands’ offline strategies must include experiential, shareable, and conversion-driven elements
  • Offline touchpoints should be treated like an additional media channel with related attribution metrics, laddering up into overall  ROI calculations

At Hot Pot China we partner with forward-thinking brands on their China activity. We guide our clients in maximising ROI from their short, medium and long-term marketing activity in China, as well as executing the same in-market.

Contact Hot Pot China to discuss how our team of China specialists can help realise greater value in your brand, digital and eCommerce initiatives.


2020 Predictions: Brands Must Try Harder to Win Over Chinese Consumers

Hot Pot China Predicts That You Need to Try Harder in 2020

7 minute read

By the Hot Pot China Strategy Team

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Chinese brands are growing in influence and global brands must take discerning Chinese consumers more seriously in 2020. 

Amid heightened political tension, scrutiny of global brands’ China activities has grown considerably in the past year. International marketing teams take their Chinese consumers for granted at their peril. The list of organisations falling foul of some of the most basic rules of China engagement is endless - Coach, Versace, Gap, NBA - and without true care and attention we expect more fatal errors in 2020. 

This comes as local Chinese brands start to truly assert themselves and can no longer be disregarded as weak competitors - they are taking market share. Indeed, national pride, driven by the 70th anniversary of the PRC, has re-hashed itself in the form of guochao (国潮) with storied local brands like White Rabbit and Feiyue reinventing themselves with cross-over and ancillary products. 

Meanwhile, domestic Chinese brands like Anta are taking the fight to the previously untouchable Adidas and Nike in the sportswear sector. Whilst we don’t expect demand for mega brands like Nike, Apple and Estée Lauder to dwindle, we do believe that domestic pride will form an increasing part of discerning Chinese consumers’ purchase decision process - particularly if US trade war strong-arm tactics continue. 

From a UK perspective, Brexit is unlikely to affect demand for travel to the UK or for British goods within China. The one exception being if the pound appreciates significantly on exit. Chinese shoppers watch exchange rates closely and fluctuations in pricing can have a noticeable effect on travel itineraries.

 

Male consumers as well as lower tier city consumers are the ones to watch. 

We predict further increases in male spend and influence. Brands can no longer afford to rely on female-heavy targeting, even in traditionally female-dominated categories such as beauty and luxury. Brands such as Dior have already made significant progress in this area, including the launch of a men’s collection in collaboration with Rimowa.

Additionally, the growing significance of lower-tier city consumers will push brands to adopt truly regional approaches and focus marketing spend outside of the “known worlds” of Beijing and Shanghai. As part of this trend, platforms such as Pinduoduo as well as Tmall and JD have made dramatic improvements in logistics, enabling brands to deliver products more efficiently. It was recently revealed that 4th tier city Putian represents the highest sales by volume of Budweiser beer versus any city globally. Collaboration with local singers has become a core part of their renowned EDM campaigns. 

 

Brands will need to work harder, smarter and spend more to reach both new AND existing audiences. 

By now, everyone and their grandparents know the ins and outs of WeChat and Weibo and even comparative enfants terribles Douyin and Little Red Book have become standardised marketing tools for brands in China. 

New-channel noise can be difficult for brands to cut through, especially as the price and quality of traffic from these channels is brought into question. Marketers will need to look at opportunities to connect with new audiences through emerging platforms. One example is sneaker trading app turned comprehensive street-style community Poizon/毒, which already has over 30 million downloads. Brands like New Balance and Casio have already set up an official presence on the platform and offer an enticing ecommerce proposition with exclusive product drops launching regularly.

As emerging platforms bring innovation into the market, the big players will keep wanting to drive innovation on their own platforms. Expect 2020 to see WeChat launching live-stream ecommerce and increase its dominance in search.

Additionally, influencers will continue to increase their hold on the market with many brand marketers insisting they’ll increase their spend on KOLs and KOCs (Key Opinion Consumers) in 2020 to reach new audiences. Brands should ask the tough questions around true value and ROI measurement of influencer activity and should focus efforts on longer term partnerships and revenue share initiatives to maximise value. 

 

As marketing fatigue sets in, engagement rates will continue to decrease. Brands will need to push technological boundaries to move beyond digital content to deliver digital experience.

WeChat open rates were once the thing of legend when compared to the Western equivalent of email marketing, but now a rate of 5% is considered strong. Even the top 500 WeChat accounts have seen an average reader decrease of 9.3%. As there are an increasing number of accounts vying for consumer attention, competition is fiercer than ever. Basic, solid brand content is no longer enough to retain an engaged audience.

China is one of the most innovative and fast-paced markets in the world and consumers consider well-designed, engaging and interactive content a must on most platforms. If content is to have meaningful cut-through however, brands will need to invest in elevating their “always-on” and assess how they can bring technologies like AR, VR and O2O experiences into their digital strategies. A lot of initial brand engagement will continue to be driven by celebrities and influencers (some brands see up to 95% of their total engagement driven in this way) as well as amplification through paid media. A key to growing organic engagement will be using data to create highly personalised content based on deep learning and understanding of consumers within owned communities.

 

Social commerce will continue to grow with new sales channels emerging, but channel growth cannot compensate for a poorly-communicated value proposition.

With the evolution of key platforms and the emergence of new ones, expect further integration of offline, social and eCommerce in 2020. A consistently cited hot topic is livestreaming eCommerce. This was brought sharply into the spotlight during the 2019 Singles Day festival in November where brands such as L’Oréal generated over RMB 1 billion sales in part due to a marathon 392 hour livestream extravaganza featuring the influencer Austin Li. 

While we do expect brands to continue to tap into this trend (WeChat is set to launch livestreaming eCommerce this year) we recommend a focus on full price “selling” rather than “selling out”. To date livestreams have been highly deal- and discount-driven, so brands must deliver a clear value proposition, providing a compelling reason for demanding Chinese consumers to buy full-price on an ongoing basis. Brands and products that can drive affinity with their core values, provenance and quality will have the best chance of doing this long term.

 

Data will continue to define the market, enabling brands to adapt more quickly and offer deeper personalisation.

Brands continue to fail to take data in China as seriously as they do in their home markets and will need to significantly up their game in 2020. Chinese consumers increasingly demand an authentic and personalised experience with, speed and agility of delivery a core factor. Expect more data driven and award winning campaigns like Nike’s Next% running shoe launch focussed exclusively on China’s fastest runners and Booking.com’s drive to build emotional connections with premium independent outbound travellers through relevant social influencers. Beyond campaigns, ecommerce behemoth Alibaba is working with over 81 brands through its Tmall Innovation Center to develop products specifically for the China market based on data and insights culled from its vast ecommerce ecosystem. 

 

Leveraging of bespoke China CRM tools to capture, integrate, segment and target consumers must become a standard. WeChat remains the prominent platform for social integration and content targeting with Dyson (highly targeted, continuously engaging and regular content and promotions) and Costco (customised entry and user journeys based on expressed preferences and interactions) strong examples of international brands using this to engage, convert and retain their customers. We also anticipate moves from Weibo, Weitao, Douyin and Little Red Book over the next 12 months to enhance and tailor the experience of their individual users. 

 

In conclusion…

As we roll into 2020 and the Year of the Rat, China remains a market of countless opportunities with accompanying pitfalls. Brands must:

  • Understand their regional and demographically diverse audiences more deeply
  • Focus efforts towards emerging platforms to supplement core channel activity
  • Redefine "content" to deliver digital experiences that bring real cut through
  • Deliver a solid, localised brand proposition to validate ongoing full price sales
  • Work with data to deliver personalised experiences across marketing, product and delivery

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At Hot Pot China we partner with forward-thinking brands on their China activity. We guide our clients in maximising ROI from their short, medium and long-term marketing activity in China, as well as executing the same in-market.

Contact Hot Pot China here to discuss how our team of China specialists can help realise greater value in your brand, digital and eCommerce initiatives.


Reflections on 2019 from CEO Jonathan Smith

Hot Pot China: My Reflections on 2019

By Founder and CEO Jonathan Smith.

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While I have always been excited and energised by the day to day of running a business, 2019 was an exceptional year at Hot Pot.

Revenue growth was solid, stemming from a set of exciting new client wins, making for a good year. However, what factors make for an exceptional one?

In a word - transformation. China’s shifting consumer landscape is great at keeping you on your toes and hence creativity, innovation and adaptability are at the heart of success. In January 2019 I worked with our leadership team to take a deep look at the business and ask a set of searching questions. Top of the list was how could Hot Pot deliver more closely on our vision - to be the first choice for forward-thinking brands looking to deliver long-term value in China?

Over the last year we uncovered, mapped out, and implemented a series of changes that helped us get ever closer to this goal. As we head into 2020 I have rarely been more energised and excited about the 12 months ahead. Below is a short summary of what we changed and why.

1. Hot Pot China took a holistic approach

Digital, social, e-commerce and m-commerce are that the heart of everything Hot Pot does. Working in China’s ever-changing landscape it is vital to have best-in-class fluency in digital trends for planning and execution purposes.

Coupled with the compelling trends around digital, our experience to date has been that far too many brands take an "arms-length" approach to China, hoping that a simple Tmall store managed from outside of China will lead to long term success. While this can be a quick route to start selling, brands that don’t build value beyond ecommerce typically find that sales grind to a halt in year 2 and beyond.

Increasingly we do valuable work with clients, planning and setting up online and offline initiatives in harmony and under a cohesive creative concept, designed to deliver tangible long-term value. Brands need to grow not only awareness, but also affinity. Chinese consumers need to see and touch products and feel part of a meaningful and memorable brand experience, something which ecommerce, social posts or paid ads alone simple cannot deliver.

As a result we have built an exceptional team of adaptable digital-first (but not digital-only) China specialists, with the ability to adapt and integrate based on the needs of a campaign or business initiative.

2. We stopped being an “agency" and doubled down on delivering value for clients

I believe Hot Pot’s greatest value has always been in leading clients through strategy, planning and execution in China. With China already a complex and challenging market there is a clear need for brands to find a genuine partner that not only understands the China landscape, but who can also work cooperatively with senior teams in globally diverse locations.

This year we have strengthened our strategy team and reorganised our execution teams to deliver on a wide range of marketing challenges. Building a longer term strategic view with clients allows us to do this. Rather than simply taking on a brief, campaign by campaign, we build in greater continuity in marketing activity, and create series of initiatives that move the needle on major business goals over time.

As a result we’ve been able to drive meaningful growth, traffic, footfall and sales with Chinese audiences for our clients. The growth comes not only in terms of number, but importantly in terms of quality. This has added up to a marked increase in our clients’ customer LTV as we see repeat interaction and purchase by engaged brand advocates.

The traditional agency model of "get brief > deliver brief > repeat" chiefly delivers on hollow vanity metrics with little link back to meaningful ROI/ROAS, sales, footfall. Which is why Hot Pot is not an agency - we are a team of specialists that deliver concrete value with China.

3. We productised and became more effective for our clients

After many years of working with China we know the commonalities in client needs - from new market entrants right through to well-established players. As a result we developed a menu of options for that can be tailored to suit our clients’ needs. The menu takes care of the core commonalities, which leaves headspace, talent and ability to focus on highly personalised solutions that work with the detailed nuances of each business we partner with.

This model empowers us to dig deep into the specific elements that really deliver impact in China - namely the nuanced understanding of a brand, its target audience in China and the individualised strategic initiatives that will deliver quality engaged customers across all channels. All this while respecting the brand’s core DNA in global markets.

This also means we are able to staff initiatives with the best skills in the industry - digital-first, bi-cultural China specialists with deep experience where it counts. I strongly believe all of this makes Hot Pot simpler to work with in a landscape that is typically complex, opaque and where the route to success is unclear.

4. We reinforced our culture and built a rock solid team

Perhaps most rewardingly as a founder, all of the above has allowed us to have a tighter focus on our most important asset, the Hot Pot team. This year we re-explored and reinforced the values that bind us together and have hired based on our commitment to these values. Yes, we’ve also made tough decisions and fired based on the same - a necessity if values are to have any meaning or resonance at all.

As a result we have an even stronger set of people in both London and Shanghai with a shared sense of purpose and shared values. This has not been a simple task when factoring in a distance of 9,000 km, 13 hour overnight flights and an 8 hour time difference. Our team fully share in the ups and downs of client projects, plus all have stepped up and taken ownership of key actions that move the whole business forward. It’s been an exciting, rewarding and ultimately humbling experience and the Hot Pot team has emerged as an even stronger force this year.

Channelling the Rat ...?

So, we head into a new year and decade in 2020. We also enter the year of the Rat, marking a brand new round of the 12-sign cycle of the Chinese zodiac. Now, for a western audience it might be hard to surface the positive traits of a lowly rodent, however in China there is always something to be admired in each of the 12 signs, the Rat included.

As we take our clients through China’s ever-shifting consumer landscape, we’ll all be aiming to learn from the Rat’s ingenuity, creativity and adaptability. Hardy creatures that learn quickly, adapt and proliferate - perhaps a fitting analogy for our client’s China success strategies in 2020.

Wishing everyone a prosperous new year from myself and the team at Hot Pot China.

Jonathan

 


 

At Hot Pot China we partner with forward-thinking brands on their China activity. We guide our clients in maximising ROI from their short, medium and long-term marketing activity in China, as well as executing the same in-market.

Contact Hot Pot China here to discuss how our team of China specialists can help realise greater value in your brand, digital and eCommerce initiatives.


11.11 Singles Day Predictions from Hot Pot China

11.11 Singles Day Predictions from Hot Pot China

This coming Monday is November 11th. For China this means only one thing - retail.

11.11 is Singles' Day and marks the largest online shopping event globally. Last year, Alibaba's Singles' Day saw sales of more than $30.8 billion (£23.9 billion) in just 24 hours, with the first billion in sales completed within 1 minute 25 seconds.

For comparison, Amazon's Prime Day sales reached $4.2 billion (£3.3 billion) over its entire 36-hour online sale. Alibaba's Singles Day eclipsed this mark just 10 minutes into their online event, making it 7x larger.

Even other famous retail days fall short. In 2018, sales on Black Friday reached $6.2 billion (£4.8 billion) and Cyber Monday rose to $7.9 billion (£6.1 billion), both of which are dwarfed by Alibaba's event.

Now well established in the minds of global retail brands looking to reach a Chinese audience, what does 2019 hold in store? The team at Hot Pot have looked at consumer trends, Alibaba's strategic initiatives and crunched some of this year's Tmall pre-sale data to compile a list of predictions.

Hot Pot China's predictions for Singles Day 2019.

  1. Premiumisation: Luxury brands will be more present and able to hold their premium positioning without excessive discounting. This will be a big win as Tmall have been keen to upgrade, with the launch of Tmall 2.0 (improved brand presentation capability on flagship stores) and a focus on Tmall Luxury Pavillion.
  2. A shift from apparel to cosmetics: it is widely believed that female fashion, long a mainstay of sales on Singles' Day, will be eclipsed by cosmetics sales in 2019. 3 days out from the festival itself, pre-sale stats show Estee Lauder with over 520,000 units sold of its Advanced Night Repair eye cream, with over RMB 1 billion in total pre-sales ($150m).
  3. Live-streaming boom continues: Live streaming saw a major rebirth in 2019 and will be highly prominent during the festival, with KOLs and KOCs (Key Opinion Consumers) inspiring purchases (and likely pocketing commission to fuel their own spending). Tmall is increasingly encouraging global brands to involve their superstar brand ambassadors in. Kim Kardashian partnered with Chinese influencer Viya for a livestream that drove pre-sale of 150,000 units of her KKW perfume brand in a single day
  4. Lower tier consumers: With incomes rising, growing sophistication and an increasing interest in a wider array of brands, the proportion of sales coming from lower-tier consumers is expected to rise significantly. Tier 2 and beyond is a major battle ground for Alibaba where impressive logistical infrastructure for eCommerce offsets consumers' reduced access to physical retail. Savvy global brands are on top of this trend and will be targeting on a hyper-local basis
  5. Going green(ish): Alibaba have been making a lot of noise around building a more sustainable footprint for the festival. We expect some movement her and plenty of PR fanfare from Alibaba around sustainable practices, but with more than a billion packages shipped, how much packaging will be generated?
  6. Returns: to compound the sustainability point above, Tmall's newly-implements returns policy will lead to higher volumes of deliveries sent back to distributors. Based on polling of our network, many fashion brands expect to see returns close to 50%.
  7. A Rival to Chunwan? With Taylor Swift due to appear at this year's Single's Day extravaganza broadcast online and on TV, the event is increasingly similar to the chunwan. A late night is in store for all as many will be gathering, watching the show, meeting and eating with friends poised to convert their presales at the stroke of midnight on Sunday. Could 11.11 become a cultural rival to the chunwan - the traditional Chinese new year's eve gathering?

At Hot Pot China we partner with forward-thinking brands on their China activity. As part of our strategic advisory work we help map out benefits of platform partnerships and digital marketing initiatives. We guide our clients in maximising ROI from their short, medium and long-term marketing activity in China.

Contact Hot Pot China here to discuss how our team of China specialists can help realise greater value in your brand, digital and eCommerce initiatives.


NARS Orgasm Collection: Shanghai O2O Case Study

NARS Celebrates Its 25th Anniversary in Shanghai

On 10th September 2019, the Shiseido subsidiary cosmetic brand NARS launched its 25th-anniversary celebration in Expo Park, Shanghai in collaboration with Tmall Little Black Box (天猫小黑盒).  

Little Black Box is an official channel for launching new products on Tmall whereby brands gain exposure for their products in return for running an offline event to cross-promote. The NARS event marked the official release of four limited edition products from the NARS “Orgasm” collection in China.

The Global CEO and Chief Growth Officer from Shiseido, Mr Marc REY, attended the event and unveiled the four limited edition products. Chinese singer Liangying Zhang, Actress Bridgette Qiao, Jinna Fu from Rocket Girls 101 as well as major beauty KOLs and Chinese media representatives were invited to share the launch moment with NARS.

The exhibition was shaped by six immersive, interactive beauty spaces - brand, makeup, highlighter, blusher, couture plate and lipstick - and attracted continuous footfall to the site throughout the launch day. Importantly, prior registration and time slots were booked via a WeChat mini-program with attendees required to provide their name, city, phone number and time slot before being given a unique QR code to be presented for entry. 

Upon entry attendees received a special card that enabled them to collect stickers from each of the interactive spaces. As a reward for collecting all six they were able to redeem a NARS exclusive package at the end of the exhibition. To drive offline interaction there was also a claw crane arcade machine for participants to try and win exclusive NARS prizes. Lastly the exhibition featured a Tmall-integrated vending machine where attendees could scan a NARS Tmall QR code to place online orders and then collect the products immediately on-site.

In addition to the continuous footfall to the site, the event generated significant engagement across Chinese social media platforms.

  • The campaign launch post about the event (featuring KOL UNINE) had 22,665 shares and 7,121 comments
  • The brand-owned hashtags #NARS25# and the more risqué #愉悦蔓延美到颤抖# ("spreading beauty to make you quiver") drew over 1.2 million discussion comments respectively

Overall The NARS 25th Anniversary campaign and exhibition is a prime example of how innovative global brands are thinking holistically by providing stand-out experiences offline with the goal of reach and capturing high-value target audiences online.

Key Considerations from Hot Pot:

  1. NARS have created a truly immersive campaign to commemorate a key milestone in the brand’s history in China. Omni-channel integration and consistency of messaging across channels is fundamental to reaching and engaging target audiences in the short and long-term
  2. The digital sign-up function is significant from a data-capture and retention perspective. The value of a follower that has opted-in and experienced the brand first-hand far outstrips the more casual social browser (e.g. acquired through paid ads only). These high-value audiences can be leveraged as early-adopters, driving organic messaging for future campaigns.
  3. Physical, offline initiatives remain hugely important to the consumer's user journey, even as they evolve to be more experiential, creative, and holistically integrated with online. Global brands headquartered outside of China may feel that they can manage a single-channel eCommerce presence from arm’s length, but they miss a key opportunity to delight their audience. Even if brand advocates cannot attend in person, they can relive offline experiences through other's social media posts. Brands may face questions of authenticity in China if their competitors have a greater or more meaningful offline presence than they do.
  4. Chinese consumers are increasingly craving a wider array of specialised products within the beauty category and are eager to build a depth of knowledge around the brands and products that they adopt. This deeper affinity was facilitated via the six immersive and interactive spaces presented at the NARS exhibition and is a key to driving loyalty and repeat purchase.

 

At Hot Pot China we partner with forward-thinking brands on their China activity. As part of our strategic advisory work we help map out benefits of platform partnerships and digital marketing initiatives. We guide our clients in maximising ROI from their short, medium and long-term marketing activity in China.

Contact Hot Pot China here to discuss how our team of China specialists can help realise greater value in your brand, digital and eCommerce initiatives.


What Next for Little Red Book?

What Next for Little Red Book?

Little Red Book, one of China's foremost UGC (user-generated content) platforms, recently made a return to the Android store after been taken down from major app stores in China in August.

The brand and product recommendation platform remains absent from the all-important Apple Store and it is believed that the app was removed due to inappropriate content. A Weibo topic/hashtag #小红书疑被各大安卓应用商店下架# (#Little Red Book removed from major Android stores#) subsequently received more than 300 Million page views and 19k comments. Little Red Book responded quickly by launching a comprehensive investigation to rectify the alleged content issues and made an official announcement on Weibo on 1st August.

According to NEXTTECH, there has been speculation that Little Red Book’s content issues might have started in 2018 as the platform started raising capital, driving an urgent need to demonstrate increasing engagement with a knock on effect on monetisation and potential revenue.

So often in China this pressure can lead to previously high-quality platforms diluting their loyal (and genuine) user base with poorer quality content, often driven by bots. As a reference, travel platform Mafengwo was recently taken to task over allegations that it fabricated up to 85% of its location-based reviews.

Little Red Book

 

In March 2019, Little Red Book had reached 220 million users (85 million monthly average users). Pressure from investors to start monetising the LRB engaged user base will have been exacerbated by revenue reports from other UGC platforms, such as Kuaishou 快手 and Douyin 抖音. 

Consequently, there appears to have been a shift in direction, from content to a more commercial focus. What effect has this had, and what does this mean for brands considering a presence on the platform?

Monitoring Content Authenticity

Little Red Book has developed authority as the go-to platform to research purchases via authentic product reviews, chiefly in fashion and beauty sectors. 

According to research by ZP Partners, 68% of premium shoppers learned about their newly-purchased fashion and beauty products via Little Red Book, compared with just 53% citing Taobao/Tmall/JD and 37% for Weibo as a source of influence.

Now however, this place of authority is under threat, as Chinese media have continuously reported on fake fans within the Little Red Book platform, as well as posts on restricted, forbidden, and fake products. Additionally, Hot Pot's own research has unearthed numerous third parties on QQ and Taobao offering pay-for-play review posts for Little Red Book.

To retain credibility and authenticity, Little Red Book has recently established an internal risk assessment and anti-fraud team to audit content, leveraging pattern recognition and machine learning technology. A 500-person strong team deletes an average of 4,285 fake posts per day, 18.6 counterfeit accounts per day, and 168 fake likes every 5 minutes. In total, 90,000 posts related to tobacco and other medical products have been removed. However, this doesn’t appear to have been enough to avoid the censors.

With its origins as an interactive content sharing community, Little Red Book now is facing a genuine challenge over the quality of its content and risks losing users’ trust.

The Struggle to Monetise

Global-to-China cross-border eCommerce started in earnest in 2014, the same year that Little Red Book -- only established one year earlier - launched its own cross-border eCommerce business. From a simple content seeding (种草) community, the platform started to build a seamless route for users to make purchases.

However, even with its significant user base, Little Red Book has perennially struggled to monetise its eCommerce business. With only 7.3% market share in cross-border in 2018, Little Red Book has been unable to break into the ranks of more dominant cross-border eCommerce giants, such as Kaola, Tmall HK and JD Worldwide, which have a combined market share of 64.3%, according to iResearch.

The majority of users currently search for and learn about products on Little Red Book before completing purchases on other platforms.

Based on the platform’s positioning and traditional user behaviour, it is widely believed that Little Red Book should focus its monetisation efforts on further developing its suite of brand marketing and advertising services, instead of pivoting to be an eCommerce platform. 

Key Considerations from the Hot Pot Team:

  • Little Red Book’s current challenges are not uncommon for Chinese platforms at this stage of development - the music app NetEase 网易云音乐, as well as popular video sharing platform BiliBili 哔哩哔哩 and short video social channel Kuaishou 快手 have all been taken down from app stores previously, only to remain fairly consistent in terms of user base
  • Challenges around content authenticity are down to the platform to solve, however when leveraged in the right way Little Red Book can prove particularly fertile ground for beauty and fashion brands to reach and engage target consumers with content, UGC and influencers linking out to external eCommerce conversion channels
  • As with all potential platform partnerships brands must dig beyond the vanity metrics to understand the end value delivered. Are you measuring activity based on falsely inflated impressions, or on quality traffic that truly reflects meaningful engagement with your target audience?
  • Little Red Book’s eCommerce offering (Red Mall) is as yet relatively unproven and among Hot Pot’s network few brands have seen meaningful returns on investment. The pressure to monetise has produced a model that currently lacks credibility and a suitable supporting infrastructure.

 

At Hot Pot China we partner with forward-thinking brands on their China activity. As part of our strategic advisory work we help map out benefits of platform partnerships and digital marketing initiatives. We guide our clients in maximising ROI from their short, medium and long-term marketing activity in China.

Contact Hot Pot China here to discuss how our team of China specialists can help realise greater value in your brand, digital and eCommerce initiatives.


Alibaba and Double 11 in 2018: Beyond the Numbers

Alibaba and Double 11 in 2018: Beyond the Numbers

This November saw record sales of RMB 213.5 billion (approximately GBP 23.8 billion) from China’s Double 11 – a shopping festival that has become a major feature of the Chinese commercial and marketing calendar for domestic and international brands alike.

Much has been written regarding the mind-boggling total transaction value, however Hot Pot’s insight team in Shanghai have looked beyond to identify three key takeaways for brands looking to build understanding and maximize value from the 11.11 shopping festival.

 

Key Takeaways: 

  • Beyond the Day: A common misconception is that Double 11 takes place on a single day. The reality is that the festival begins with pre-sale and add-to-basket in late October and brands are increasingly choosing to extend their promotional offers beyond the 11th November. Given that the length of the festival continues to grow, brands must develop their strategic plan well in advance to capitalise and consider appropriate budget allocation and activations before, during and after 11th November. Typically any non 11.11 related sales will taper off sharply from mid October and this needs to be factored into quarterly sales forecasts.

  • Beyond the Discount: Tmall and the Double 11 festival have developed a reputation for heavy promotion and discounting. This year Hot Pot saw notable campaigns from brands, especially in the luxury sector, that provided consumers with an immersive and engaging experience to counteract this need to discount. Exclusive and limited-edition products hold huge appeal and were able to drive traffic and conversions demonstrating that brands can succeed online in China without purely discounting aggressively. Additionally Tmall’s increasing arsenal of gaming, voting, and user-generated content mechanisms can be leveraged to good effect and should be considered key elements of seasonal promotional plans.
  • Beyond Tmall: Platforms from across the Alibaba ecosystem are playing an increasingly important role in the festival. For example, Eleme (food & goods delivery services), Fliggy (travel & booking), Hema (O2O retail in fresh groceries), Xianyu (second hand marketplace) and Damai (ticketing platform) are all leveraging the increased 11.11 consumer interest to drive sales. Additionally, a new Tmall initiative introduced offline activations in 12 cities covering 100 high-performing retail districts areas and 180,000 offline stores. Users were able to use their Taobao and Tmall apps to scan 11.11 barcodes at physical retail locations to receive on-the-spot discounts and coupons.

  • Brands including L’Oreal, KIMISS and Beats were key participants looking to leverage the retail opportunity offered by the offline activations. As consumers increasingly look for a seamless brand experience online and offline it is vital that an integrated omni-channel strategy is implemented and this can now be factored in to festival-based planning.

(image credits: Alizila, Fortune. Retail Week)


About Hot Pot

Hot Pot continually monitors the rapidly evolving face of retail in China. We plan and execute omni-channel strategies for some of the world’s leading retail brands.

Get in touch to discover how Hot Pot can help you optimise returns from China eCommerce initiatives, both in and outside of the Alibaba ecosystem.