O2O: The New Rising Force of China

China, the world’s largest consumer market, has become an implicit leader in the global market. Nowadays, according to the National Bureau of Statistics the service industry in China accounted the prominent share for 46.1 % of country’s GDP in 2013, which makes consumers the major driving force of growth. From consumer spending to the influence of social media, it is important to look at one of the trends for 2015 – online-to-offline commerce, shortly O2O- to understand the dynamics of the Chinese market.

New technologies led by wide spread of mobile phones are blurring the frontiers between online and offline, integrating the blend of both into different industries. This is how the O2O has appeared in today China reality.

O2O stands for offline-to-online and online-to-offline retailing strategy. It is the well balanced integration of the Internet and bricks-and-mortar stores through a combination of online and offline. O2O is not only the e-commerce of offline companies and the offline experience of usual e-commerce companies, it is also a consistent integration of online and offline terminals: stores, laptops, mobile devices, TV etc. Integrated O2O consumers can benefit the better price, while enjoying the offline service.

In this article we are going to talk about how O2O is rising in China and what technologies and strategies help it to prevail over traditional business models, as well as what brands and retailers have to keep in mind if they want to adjust to the new environment within the country.

Growing O2O in China

China has more than 642 million Internet users and according to Social Medea Today, 91% of these users maintain multiple social media accounts and 43% highly consider products and brands shared or recommended by friends. Therefore, as one can imagine the development of O2O in China is gaining speed.

O2O strategies are focused on creating up-sale opportunities by providing efficient ways to connect the retail sales channels (both offline and online) in a way that customers can choose the most convenient channel to interact with the brand or the retailer themselves at the different time and stage of their shopping journey.

The success of integrating social media and shopping experience is abundantly demonstrated by a 350% increase in online and offline purchasing only this year alone.

In this increasingly fierce competitive environment, it is time for companies to reorganize their ways of doing business, and instead of having separated departments for on-spot sales and online sales, focus on combining offline and online sales that are going to stay buzzing in China for long. O2O helps to facilitate an efficient co-existence of both channels and support sales growth without contradiction.

Recently, brand owners and retailers are putting a lot of effort in diversifying and connecting sales channels. Every day they strive to beat the competition, so they need to look ahead and feel the customers’ preferences. Companies operating in China have to be aware of the main strategies that, in our opinion, are the most important in terms of understanding and anticipating to the fast and ever changing consumer expectations: implementing new sales channels fast, facilitating multi-channel alterations and generating up-sales opportunities from the customers’ interaction between online and offline sales channels.

O2O-Online-to-offline

Customers Behavior

Social media offers users the opportunity to showcase and share their status, opinions, experiences and purchasing power capability. They are showing off not only themselves but also the products they buy. Companies cannot have better and easier free marketing, especially in China, where people prefer to rely on previous experiences and opinions.
Consumers are willing to know and discuss in what way the product will benefit them. For brands it is important to realize that creating sharable and engaging information, which reflects the products they are selling, helps to increase the chance of success.
Opportunities

In our rapid developing world full of new technologies, apps serve as an O2O tool for traditional retailers to upgrade their business model.

O2O services among taxis, hotels restaurants and other small and medium sized enterprises have already spread widely in China. More and more companies are implementing O2O strategies in order attract more customers, improve their brand images, maximize profits and creating great synergy for their offline business. Wanda Group, for example, has invested 814 million USD in huge shopping centers around the country in cooperation with Baidu and Tencent, and that helped to launch a B2C platform.

According to a survey by Global Brand Insights, in China giant companies like Tencent Holdings and Alibaba Group have started the O2O fray. They are racing to roll out apps that can link the Internet to traditional businesses and to partner with physical stores and service providers.

WeChat

This year Tencent aggressively went after Alibaba with its new version of WeChat that bundles user accounts with credit card information and Tencent’s Tenpay online payment service. WeChat users can now buy products and complete payments directly through WeChat. Smartphone maker Xiaomi, for instance, took full advantage of WeChat’s new features by selling over 150.000 smartphones in 10 minutes during a flash sale operation in December.

WeChat could not set aside a traditional Chinese New Year custom of giving hongbao, or red envelopes filled with money and launched a virtual red envelope service, allowing people to send hongbao to their friends through the app. The virtual hongbao helped WeChat cultivate users for its payment service and opens many doors for the O2O commerce to move ahead.

o2o

QR Code

QR codes in China have done more noise than in any other country by widely incorporating their usage into daily life, industries and services, which made the market simply awash in QR codes and gained incredible profit out of it. QR codes have been embraced by small businesses and big brands alike to enhance their in-store experience and add an interactive layer to offline content. What is most interesting to see is that the way brands use QR codes is becoming more inventive. For instance, just before China’s Singles day, the yearly shopping spree, some retailers slapped QR codes on hangers inside their stores to allow visitors to place articles inside their shopping cart in order to purchase during Singles Day with a discount price.

shopping cart qr

The other example is the flurry of taxi hailing apps that appeared in cities across China throughout the year. Swiftly entered China, Uber now not only offers clients credit card payments but also accepts Alipay mobile payment. All these services demonstrate that online services are benefiting more through the inclusion of an offline element and those online platforms are penetrating what were previously purely offline activities.

This integration of social media, technology and physical purchases is certain to continue and be innovative.

Starbucks Case
Last year the month before Chinese New Year, Starbucks started its campaign called “Daily goodness”. Every day it encouraged customers on social media to visit Starbucks shops and take part in certain activities, like sending online greetings through the app or give parents a bear hug in store to get a three for two deal. All challenges were fun, easy and leveraged the Chinese New Year’s festive atmosphere and spirit of goodwill. Through this operation, Starbucks not only managed to create a deeper bond with local customers but also multiplied its sales by 10 compared to other months. This example shows the power of O2O concepts and how it can create homeruns when you are creative in mixing new technologies and cultural aspects.

Technologies

Nowadays, technology is one of the most important tools to support focusing on the customer.
Typically an O2O commerce model implies Online Payment, access to e-vouchers, e-coupons and e-tickets and offline verification. Vise versa customers get the product information via scanning a QR code from an offline physical store and paying on-the-spot or via mobile online payment.

Recently there was implemented a new innovative tool for O2O services, which Maxxelli Consulting believes will spur the development of new services and markets in myriad scenarios across diverse industries: iBeacon
iBeacon is precisely pinpointing the microlocation of your customers and interacts with them. When the device is within the geo-fence of an iBeacon station, it will pick up the signal from the station and therefore receive information from it.
iBeacon sends customers on-the-spot and customized product and sales information. This tool is helping to understand the customers’ needs deeply and manage the clientele more efficiently. iBeacon helps shopping mall retailers understand the performance of different zones within a commercial space.

iBeacon technology is becoming increasingly popular in the modern world. If you have gotten a notification relating to a nearby store while walking around a shopping mall then you know exactly what we are talking about. From museums to sport stadiums, iBeacon technology is being used to provide an enhanced personal experience and this update improves the Bluetooth connection required and makes it more stable.

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Challenges

Social media, in-store omni-channel commerce, and mobile technologies – the digital revolution continues and expands, forcing brands and retailers to adapt their plans and build new solutions. The retailers have to understand how to leverage on the social media traffic, especially WeChat or Dianping, use social media not only for branding, but also for business development.

Maxxelli Consulting sees the biggest challenge for small and medium enterprises is actually adopting of the O2O innovation. Unfortunately, for small enterprises it is not always easy to embrace the innovation due to market fast restructuring, making the extensive, traditional economic mode develop towards an efficient resource utilization one and realize effective integration of resources in terms of supply and demand. It is safe to go with the flow and use the same campaign, but preferences are changing and the brands must know how to run ahead and feel the changes. For big companies like Tencent it will not be a problem, as they have enough power and experience to create their own driven force, but for small companies it is a challenge to find the right channel and solutions for their products. Start-up events might help to solve the problem, since it allows smaller companies to have brainstorm sessions and to create and launch specific solutions for their needs.

Another challenge we see is finding the talents who will provide tech support for the integration of O2O models and big data analyzing. China’s O2O market is in need of talents who are specialized in statistics, actuarial calculations, data analysis and model compilation, as well as related cloud computing and large-scale development of enterprise-level big data processing centers.
The past five years China’s e-commerce market has expanded exponentially and has risen from roughly 21 billion USD in 2008 to nearly 300 billion USD in 2013. As e-commerce attempt to reach more customers by integrating O2O, the logistic through wide geographic regions could be a serious challenge. The situation with growing of domestic express delivery, which is mostly works for supporting e-commerce, raises a question how will the logistics companies handle the continuously increasing volumes. To find a high quality logistics provider in China is a real challenge: late deliveries, lost or damaged packages, slow collect on delivery service and many more. All these problems issues inevitably affect the credibility and reputation of the retailer. For the big companies it makes sense to build the internal logistics network within the organization, incorporate their own team into the business model to ensure the quality of the service. For the small players it is crucial to understand how to increase the quality of the delivery and better customers’ experience. Companies can either solve this problem by including questionnaires for their buyers and closely monitoring the performance of the third party delivery company or by investing in partnerships with existing logistics companies with a good reputation.

 

As we just saw, China’s O2O market is expected to grow into a system, throwing off trillions of RMB in revenues. The sector is still about to get a real speed, but it is alredy viewed as a gold mine for companies that are implementing O2O channels into their business model. This market access is based on consumption guidance and mainly supported by the spread of mobile web browsers, social media and apps. However, as we outlined above, there are various challenges that need to be overcome. Use smart the chance, that O2O offered to the companies, and create an environment for you business to flourish.

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