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"2 China Policy" - for Global Brands

China is the top e-commerce market in the world, soon to be double the size of the US market. Bolstered by the development of world-class logistics, native online payment solutions like Alipay and WeChat Pay, and a surging economy, China's speed of growth is absolutely unprecedented. The world's merchants see the potential, and want to maximize their China revenue. In order to do so, they must realize that two kinds of Chinese customers exist and they require very different marketing channels.

The convenience customer is by far the most common in China. In fact, China's biggest platforms, Tmall, Taobao and JingDong serve the convenience customer and account for the bulk (81%) of the China e-commerce pie. Chinese consumers love both platforms because they contain a wide selection of brands and are hyper focused on last mile delivery optimization (often providing same or one-day delivery by courier or drone).

The convenience comes at a price. Quick product delivery means limited product selection, China warehousing, and often higher pricing due to the extra cost structure of China logistics, mandatory ad commitments and marketing partners needed to navigate the complex marketing methodology of the large platforms. As a result product pricing can be 20-150% more than the price on merchant's regular .com site.

Many customers address the pricing issue by shunning official Tmall and JD stores, instead opting for local resellers on platforms such as TaoBao. TaoBao is essentially a Chinese Ebay or Wish, the pricing is certainly better, but the product quality and authenticity is dubious. Resellers of brands on Taobao at best erode brand pricing for the entire China market, at worst they sell fake products and damage the brand image. Unfortunately, Alibaba has still not solved the fake goods problem on Taobao so piracy profiteers who mix in fake product to increase their margins continue to thrive.

The authenticity or "cross-border" customer is the fastest growing category and expected to triple in size in four years (1 Trillion USD by 2021). Cross-border customers are more savvy and want the same pricing and promotions that other global consumers receive. They don't feel they should receive fake products or higher pricing because they live in China. There aren't many official channels serving the authenticity customer. Some merchants have developed a .cn site, take Chinese payment and have logistics but most offer very incomplete clunky solutions.

The cross-border customer wants to shop directly from .com sites but cannot due to localization issues, lag times, lack of credit cards and Chinese customer service. They want a real shopping experience with the full long-tail product line, not a China specific product selection curated by a merchant's China team or worse their China reseller. They don't mind waiting 1-2 weeks to receive product but they want their effort validated with real branded product they can confidently show off to their friends.

Over my 18 years of online marketing in China, many customers voice concerns about channel conflict. Commonly discussed is the large investment made in a China team, a .cn, a China reseller, and I understand the concerns. But brands should make marketing decisions based on serving the customer, not their corporate structure. Embrace and service both kinds of customers with a cross-border and in-country strategy and give your customers choice. In my experience the benefits of multi-channel promotion are increased sales, visibility and profits. Many customers will always want the product in a day, many will always want a cheaper, guaranteed authentic unique product. The only real downside is sales cannibalization, but that is muted as a well-thought out cross-border strategy crowds out bad resellers that can erode price and damage your brand.

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