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Your Complete Category Handbook
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Page 1: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Your Complete Category Handbook

Page 2: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Chinese consumers’ rising needs for overseas products have provided overseas retailers with a wealth of oppor-tunities. However, these opportunities are not evenly distributed among all categories. Some categories are more popular; some are easier to operate; some need to be given extra attention.

Di�erent countries also have di�erent popular categories for Chinese cross-border online shoppers. Retailers need to know what are the categories from their countries that Chinese consumers love the most, thus to make a better category strategy.

Di�erent categories require di�erent operational strate-gies. Some need specific web design; some require to be shipped through specific shipping routes; some are more demanding in merchandising. In addition to all the di�er-ences in operating di�erent categories, some strategies can be adopted in all categories.

In this whitepaper, Azoya takes a deep dive into di�erent categories that are popular among Chinese cross-border online shoppers. In the first part, each category will be analyzed with respect to its market opportunity. In the second part, suggestions to each category regarding eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions for all categories will be given.

Market Overview2

Opportunity for Di�erent Categories

Category Popularity in Di�erent Countries

Local Operations That Need to be Tailored Based on CategoryeCommerce Website Design

Shipping Route

Merchandising

Operations Suggestions for All CategoriesMarketing Campaign Design

Marketing Content Creation

Choosing the Right Marketing Channels

Conclusion

Sell to China: Your Complete Category Handbook

Introduction

Introduction1

7

10

14

Page 3: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Market Overview

Here’s a chart of Chinese overseas online shoppers’ shopping preferences on di�erent categories:

We can see that Cosmetic and Personal Care, Mom and Baby Products and Nutrition Supple-ment Products are the most popular categories in China’s OOS market. However, categories with smaller popularity still have a considerable market demand. Below are the opportunity analyses for each category:

Total Retail sales in 2014

US$22billion

Skin Care Make-up

Data from Euromonitor revealed that the total retail sales of skin care products and make-up products achieving year-on-year growth of 8.0% and 9.4% respectively.

In a whole, China’s Cosmetics and Personal Care market is mainly occupied by foreign brands. Domestic brands only take up about 20% of the market share, while foreign brands own about 80% of the total Cosmetic and Personal Care

1Hong Kong Trade Development Council

2Sina Fashion

3iResearch

market share. This situation means great opportuni-ty for overseas beauty retailers.

Today, China has become one of the world's fastest growing cosmetics retail markets, and the momen-tum still continues. In 2014, the market volume of France and the United States’ cosmetics market increased by 0.5% and 1.9% respectively, while the growth rate of China’s cosmetics market reached 7.2%.

As Chinese consumers’ incomes increase and so does their awareness of skin care, mid- to high-end brand's market share will significantly increase. Taking 200 yuan (~US$ 30) as a cuto� point:

market share of products >200 yuan

*the growth rate of high-end cosmetics retail market is higher than that of the entire cosmetic and personal care market with 2% advantage.2

*Overseas Online Shopping

With the large numbers of post 80s and 90s stepping into marriage and childbearing age, the fourth baby boom in China is around the corner. Meanwhile, China's population aged between 0 and 14 began to increase again since 2012 and such positive growth is projected to be sustainable in the next few years. China’s recent removal of its one-child policy will further boost the baby boom.

China’s mother and baby online shopping GMV grew steadily from 2011 to 2014, which was even higher than the growth rate of o�ine shopping GMV, implying

a. Cosmetic and Personal Care1

Cosmetic and Personal Care

Mom and Baby Products

Nutrition Supplement

Products

Clothing and Shoes

3C Products Home Care Bags Outdoor products

Eletronics Toys

56/8& 4:/4& 49/7& 49/1&

41/7& 37/7&37/2& 37/1&

35/5& 34/2&

Opportunity for Di�erent Categories

Sell to China: Your Complete Category Handbook

Top 10 OOS* Categories

US3.2billion

2012 2014 2016

18.7%19.3%

>20%

b. Mom and baby products3

Page 4: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

climbing penetration of online channels. Since 2014, mother and baby eCommerce saw faster growth of online shopping GMV than the overall online shopping market and even experienced explosive growth from the second half of 2014 to the first half of 2015 and created an online channel penetration rate of 15.5% at the end of 2015. Along with the coming of another baby boom and development of cross-border online shopping, mother and baby online shopping market holds enormous market potential.4

c. Nutrition and supplement products5

Chinese Nutrition and Supplement Market

3C Online Shopping Transaction 2015

B2C

Per Capita Consumption in 2014

According to Bain’s prediction, China’s nutrition and supplement industry was expected to maintain an average annual growth rate of 8% in the next four years to 2018 to reach US$ 19 billion.

According to experts’ research, to acquire CFDA’s "blue hat", foreign brands normally need to pay US$ 76,000 to 151,000 as average cost for each SKU, and wait for up to 1 - 2 years to get an approval. So before cross-border eCommerce was adopted, Unauthorized foreign brands had to sell through grey channels.

However, cross-border eCommerce makes it possi-ble for overseas brands to sell to China directly. As long as the items are for personal use and shipped by personal parcels, they only need to keep in line with the Drug Administration standards of the origin country, which has dramatically reduced the barriers for foreign retailers.

d. Clothes, Shoes & Bags6

The market is more mature and stable after years of development. As online shopping market matures, customers started to buy more from online chan-nels. The online penetration rate of China’s clothes market has reached 32.1% in 2014. China’s rising middle class consumers have increas-ing demand for overseas cloth, shoes and bags prod-ucts, especially luxury products. According to UnionPay International, 46% of global luxuries were purchased by Chinese customers in 2014.

e. 3C Products7

*In H1 2015, China’s 3C online shopping transaction size was US$ 25.5 billion.

Chinese customers buy 3C products from overseas mainly for lower prices. Some certain items are relatively more expensive in the domestic market, so customers set their eyes on overseas online retailers. Hong Kong and the U.S. are the most popular shopping destinations for Chinese 3C Haitao(overseas online shopping) shoppers.

Sell to China: Your Complete Category Handbook

US$ 15.2 billion US$ 33.3 billion

4,6,7iResearch5China Industry Information http://www.chyxx.com/

US$ 64 US$ 47.3 US$ 13

US$ 289 billion US$ 455 billion

2014 2015

2014 2017

(Projected)

Market Size of China’s Apparel Industry

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US$ 8 billion

USD200USD30

US$ 11.4 billion US$ 15 billion

Europe and North America are more mature in outdoor products industry. Higher disposable income has ensured people more opportunities to participate in outdoor activities in these countries. Due to good natural environment and people's yearning for a healthy lifestyle, outdoor sports in Europe and America have a broad mass base, which provide a fundamental power for the development of outdoor products industry.

Chinese outdoor sports enthusiasts naturally take Western countries as pioneers in this field. Products from these countries are more popular than domes-tic brands. Consumers of outdoor products in China are mainly those middle class living in Tier 1 or 2 cities. They have higher disposable incomes and are more familiar with Western consumer goods. ARC TERYX, The North Face and Columbia are among the most famous brands in China’s outdoor sports OOS market.

3C retailers who seek to sell their products to China need to keep the prices competitive. If Chinese customers don’t find the products cheaper, they will have no other reasons to buy.

total retail sales of Chinese toys market

average annual growth rate of 12.6%.

Spent per capita

* consumers under 16 years’ old

There is still a considerable room for growth.

Online shopping has become the new trend in toys consumption. A survey in 2010 showed that only 14 percent of parents said they had purchased toys online in the last year; in 2014, a renewed survey found that the proportion had risen to 46%.

According to the statics of the State General Administration of Customs, the value of imported toys in China increased by 38.27% in 2015. Both the quantity and value of many hot imported items were experiencing explosive growth in 2015.

Sell to China: Your Complete Category Handbook

8Source: Hong Kong Trade Development Council

f. outdoor products

g. Toys8

2010 2014 2017

>

>

(Projected)

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US Japan Korea Germany Australia UK New Zealand France

64/:&

56/8&46/4&

39/6& 39/1&31/5& 31/5& 2:/7&

Category popularity in di�erent countries

Sell to China: Your Complete Category Handbook

Top 8 Countries for OOS

Most Popular Categories & Brands in China

COSMETICS HOMECAREMOM & BABY 3C PERSONAL CARE NUTRITION SUPPLEMENT

FOODCOSMETICS PERSONAL CARE MOM & BABY

CLOTHES & SHOES

NUTRITION SUPPLEMENT

MOM & BABY PERSONAL CAREBAGS 3CCOSMETICS

Page 7: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Sell to China: Your Complete Category Handbook

COSMETICS HOMECARE NUTRITION SUPPLEMENT

MOM & BABY PERSONAL CARE

BAGS CLOTHES & SHOES

NUTRITION SUPPLEMENT

MOM & BABY COSMETICS

COSMETICS CLOTHES & SHOES

MOM & BABY PERSONAL CARE NUTRITION SUPPLEMENT

COSMETICS

COSMETICS

PERSONAL CARE MOM & BABY

MOM & BABY

PERSONAL CARE

NUTRITION SUPPLEMENT

PERSONAL CARE

Page 8: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

sales, the website need to have a recommendation system to match this need. When a customer adds specific items into the cart, the most relevant articles will pop out simultaneously.

c. Nutrition Supplement Products

This category requires the least web design. They have a low rate of products update. When sold online, they require the websites to present certain products in designated and fixed area.

For example, in the home page, all listed products should display “add to cart” button. This is to increase conversion rate while not annoy the visitors.

a. Cosmetic and Personal Care Products, Clothes, Shoes & Bags

These categories emphasize the most on web design. They require the websites to be attractive and clutterless.

They also have a reputation for updating new items very fast. So when a new item is intro-duced, it needs to be highlighted in the homepage immediately. Furthermore, for fashion, an outlet sector can be considered to be fixed in a specific area, so visitors can develop an expectation and revisit the site regularly.

Like clothes & Shoes, these two categories emphasize more on presenting products in pictures. In the same time, since these categories tend to promote sales by tie-in

b. Home Care Products, Mom & Baby Products

eCommerce Website Design

Whether overseas retailers choose to build their own Chinese version online store or go to Chinese online marketplaces, they need to design their stores according to the intrinsic requirements of di�erent categories. Di�erent categories have di�erent requirement on product updates, product presenta-tion and marketing cooperation, etc.

Sell to China: Your Complete Category Handbook

Local Operations That Need to be Tailored Based on Category

Outlet Sector

Recommendation System

Add to Cart

Page 9: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Under China’s new import eComerce regulations, di�erent categories apply to di�erent tax rate. Moreover, the tax rate of the same category may be di�erent in di�erent shipping channels. Even though the new tax policy has been suspended for a year, retailers should prepare for this. They should choose the most suitable shipping route to reduce costs.

Shipping Route

B2C Direct Shipping:

B2C Direct Shipping is a formal import eCommerce model. It requires 3 records of each purchase to be synchronized to the Chinese customs authority’s system, before the parcels arrive at the customhouse. These 3 records are on purchase, payment and shipment.

Personal Parcel Shipping:

In personal parcel shipping route, parcels are carried by international express companies. The parcels are deemed as articles that are for personal use. Each parcel will be declared automatically by the carrier.

UPU Shipping:

UPU (Universal Postal Union) Shipping route is used mainly for personal correspondences among countries. The Chinese customs authorities spot check UPU parcels. The rate of being checked is 5%. Parcels being checked will pay postal tax. (The postal tax rate is 15%, 30%, and 60% based on di�erent categories)

Sell to China: Your Complete Category Handbook

The Most Suitable Shipping Routes Categories

B2C Direct Shipping

Personal Parcel Shipping

UPU Shipping

Nutrition Supplement, Toys (Lower parcel value)

Cosmetics, Home Care

Mom & Baby Products, Clothes & Shoes, Bags, Outdoor Products, 3C, Skin care, Toys (Higher parcel value)

Page 10: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Merchandising

Choosing the right products is important to make your retail business sustainable in the China market. The most important strategy in merchandizing is to use hot items to attract tra�c and secure more profits by selling “long tail” products*. Here are the aspects you need to consider when making merchandising decisions in di�erent categories:

a. Cosmetic and Personal Care

b. Mother & Baby

1. Brand licensing and regional sales restriction could be a fetter for many international first or second-tier brands. To avoid competing with their other channels, many brands are reluctant to distribute their products to other sales channels.

2. Shipping certain cosmetic products through international shipping are sometimes troublesome. For example, products filled with condensed air cannot be shipped by air.

Hot items can be out of sales. For example, some items are extremely popular among Chinese customers, meanwhile the supply can’t meet the market demand. If a retailer introduces a brand that is in short supply, it risks creating a negative customer experience.

1. This category experience the same problem with Mother Baby products—hot items in short supply can result in bad shopping experiences.

2. It requires a lot of customer education to sell a less known overseas brand.

Size standard di�erence can result in high rate of return, which will dampen customer experiences.

c. Nutrition Supplement

d. Clothing and shoes

e. 3C

f. Home Care

g. Bags

h. Outdoor products

i. Electronics

1. Price can’t be too high compared with domes-tic counterparts. There’re a lot of alternative in the market.2. Logistics is another major problem. Some products can be fragile or oversized.

1. Like cosmetic products, some bag brands are under strict brand licensing and regional sales restrictions.2. Goods return can greatly a�ect the business, too. A large proportion of bags are luxuries, which are of high unit prices. Refund can add too much pressure to the operational cash flow.

Size standard di�erence can result in return, which will dampen customer experiences.

Warranty, compatibility and usage di�erence are the major three factors retailers need to take into account.

Content creation is of paramount importance in promoting toys products. Educational contents will persuade parents to buy more easily. Con-sidering language barriers, this is not an easy task.

j. Toys

Quality warranty and price are the major two factors. Products with global warranty will be more popular. Customers buy 3C products from overseas mainly because of lower prices. High prices will keep customers away.

Sell to China: Your Complete Category Handbook

9

*Long tail products: products that have lower demand but still get a considerable amount of orders in total the long term.

Page 11: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Marketing campaign design

a. Coupons and free delivery

Campaign coupons

Cart coupons

Brand coupons

Time limited coupons

Regular/ New customer coupons

Time limited coupons can only be used during certain time span. The purpose of it is to increase order volume in certain point of time, thus to boost tra�c and get spotlight.

Some coupons are designed for regular custom-ers. By doing so sellers can build a bond with regular customers and increase customer loyal-ty. Meanwhile, some

The most common methods of sales promotion in China’s cross-border eCommerce are coupons and free delivery.

The application of coupons can be very diverse and complicated. There are mainly 6 kinds of coupons:

This kind of coupon can only be used in certain campaigns. China’s eCommerce merchants like to invent various shopping carnivals in which customers can get a lot of coupons. It’s an e�ec-tive way to attract users’ attention and boost engagement by distributing coupons in various online channels.

This kind of coupon is only o�ered to users whose cart value has met certain amount. Its purpose is to encourage customers to buy more thus reduce marginal shipping cost.

By using brand coupons customers can get discounts when buying a certain selection of brands. This is a smart way to sell “long tail” products, since it's not sustainable to only sell hot products.

coupons are only for new customers. The purpose of o�ering new customers favor is to facilitate customer acquisition.

Repurchase coupons

By using repurchase coupons, customers are o�ered a coupon for next purchase. For example, retailers give a customer a coupon of 50 Yuan that’s applicable only when he buys the same product next time. This is an e�ective way to promote certain items.

Free delivery is more important in cross-border shopping than in domestic shopping. By setting higher free delivery limits, sellers can navigate customers to buy more and increase per custom-er transaction. This is important because shipping cost in cross-border shipping is high, shipping more products in one parcel will significantly reduce marginal shipping cost. In the contrast, by setting lower free delivery, sellers can attract more customers and boost sales. By employing these two opposite free delivery strategies, sellers can achieve di�erent purpose they want.

Apart from coupons and free delivery o�ering, there are other two major kinds of promotion methods in China’s eCommerce business:

Sell to China: Your Complete Category Handbook

1

2

3

4

6

5

Operations Suggestions for All Categories

Page 12: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Conditioned sales promotion consists of time-conditioned promotion, amount-limited promotion and single-item promotion. The purpose of them is to appeal new users, navigate them to place orders and make the website more active.

Time-conditioned promotion only allows a specif-ic range of time when customers can get a discount or “seckill”. Amount-limited promotion only allows a certain

b. Conditioned sales promotion

amount of products to be sold at a discount. Single-item promotion only provides a single item product at a very favorable price to customers.

c. Tie-in sales promotion

After customers add a specific product to the cart, retailers will recommend some bound items and o�er customers discounts if they buy them together. By doing this, retailers can navigate the existing customers to buying more and make them happy at the same time.

a. Be useful

Provide high-quality, exclusive, and useful informa-tion to users to address their specific needs. For example, tell users about the medical kit of mothers in western countries. Most of them are curious about foreign information, especially on health care. Feed their curiosity and provide them what they need.

Marketing Content Creation

b. Be interesting

Chinese online shoppers are drenched in a wealth of information every day. They won’t open every message they’ve received and read it throughout. It’s extremely important to grab their eyeballs and attract them to continue reading. Here’s a title that may serve this purpose: The striking comparison between Chinese mother and German mothers in their way of nurturing. (Chinese language can express much more information in a short sentence than English…) You can also present your contents in comics, which is easier to finish reading.

c. Be on the trend

You need to understand the demographics of your customers. Chinese overseas online shopping (Haitao) users are mainly young females with decent income. They love to catch the trend and talk about what’s on the trend in internet. For example, Korean TV dramas are one of their most favorite topics. Creating your contents using their language and focusing on what they are interested is always a safe way.

Sell to China: Your Complete Category Handbook

Recommend suitable cosmetic product with content related to hot Chinese TV dramas (Tunhuoji)

Page 13: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Choosing the Right Marketing Channels

the platform must be meticulous over the products they are recommending. All products appearing on the platform are carefully screened to make sure the information is truly helpful. After all, a disappointed user will never come back again.

a. Online Shopping Guide

Online shopping guide is a platform in which users or the platform itself publish/ share shopping experi-ences or products information. The biggest advan-tage of online shopping guide is that it has a group of loyal users who are drawn to the community for their common interests and experiences.

Online shopping guide operates in two ways. The first kind is positioned as media. The platform publishes contents written by professionals, giving authoritative advice and opinion on shopping or product selection. This model is called PGC (Profes-sionally Generated Content) community.

The second kind is positioned as social platform. Users share their own experiences and opinion on the platform, they can interact with each other by commenting, liking, reposting and sharing. The platform is built on contents created by users. The platform encourages users to publish original contents by giving them credits, which can gain them special o�ers. This model is called UGC (User Generated Content) community.

Both the two models accurately target at Chinese overseas online shoppers. Users tend to develop a high level of trust on the community and the platform. An article recommending certain products usually has a conversion rate up to 10%. - 10% of the readers will eventually buy the products.

Tunhuoji is an information platform that educates Chinese consumers on overseas products that can be bought through cross-border online shopping. Contents are contributed by users with rich experiences.9

9Itunes APP

The platform serves two functions in users’ shop-ping decision making. The first is to select products. There’re countless products from dozens of coun-tries over the world. Consumers will find themselves lost in the ocean of information if they decide to find the right products from tens of thousands of prod-ucts’ page. To save time and energy, consumers have no choice but listen to what the professionals and peers are saying.

Sell to China: Your Complete Category Handbook

The second is to provide guarantee to users. Facing numerous shopping choices, consumers don’t have enough information to judge which one can be trust-ed. The platform can give them guarantee over products. To maintain its own brand image,

Page 14: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

b. Price Compare sites

c. Social Media

Price compare websites list the same products from various retailers and rank them according to their prices. These websites usually provide browser plug-ins to display the ranking list automatically when users are browsing shopping sites. This means tremendous tra�c and brand exposure opportunity.

By cooperating with the price compare websites, retailers can have their products displayed in the ranking list. It’s advisable that overseas retailers select certain low price products to go there. Even if the prices are not competitive enough, it’s still an opportunity to expose your products and brand.

China’s social media platforms have been facilitating and accelerating eCommerce activity. The main social media platforms in China, represented by Weibo and WeChat, have been growing rapidly. Weibo is the counterpart of Twitter in China. WeChat is a mobile Instant Messenger app that has a wide range of features. They are both the deal platforms for e-marketing and branding.

Sell to China: Your Complete Category Handbook

With almost instantaneous feedback and easy-to-use interfaces, social media platforms have become a staple in the life of Chinese e-consumers. Consumers in China use these platforms for imme-diate ‘buy/don’t buy’ advice from friends, to post product reviews, and to seek product knowl-edge/advice from key opinion leaders. On average, ten times more Chinese consumers based their purchasing decisions on what was happening in their social networks when compared with American consumers across all age groups. This aligns with recent research that shows the degree to which social media drives online shopping in China and how mobile connectivity has changed in-store consumer behavior – reinforcing the increased emphasis that retailers must place on social media for a successful marketing strategy in China.

91lai, one of the most popular price compare websites in China

Page 15: Your Complete Category Handbook - IMRG eCommerce website design, shipping routes, and merchandising will be given. Finally, general suggestions ... According to Bain’s prediction,

Chinese cross-border online shoppers have di�er-ent levels of needs for di�erent categories of over-seas products. Di�erent countries have di�erent hot categories for Chinese customers. Retailers intend to sell to China through cross-border eCom-merce should make their strategies based on this information. With what’s popular and what’s not in mind, retailers can make right customer acquisition strategies to attract customers by selling hot prod-ucts and secure more profits by selling “long tail products”.

Di�erent categories require di�erent operation strategies. This can be very nuanced and complicat-ed, especially when it comes to merchandising. Having a local expert advising you on all the involved matters is quite an onerous work, consid-ering how fast the market changes. Instead, a local partner can help you better adapt to the market and increase the e�ciency.

Some strategies are shared among all categories. The methods can be learned and shared by all retail-ers. However, acquiring the know-hows is one thing, executing them is another. The comprehen-sive operation and marketing knowledge o�ered by this whitepaper provides the directions which retail-ers need to focus on, but bringing them to practice may go awry if it’s done by outsiders without local knowledge. It’s advisable that retailers work with an eligible local partner who can take responsibilities for growing their business in China.

Sell to China: Your Complete Category Handbook

Conclusion

A local partner can help you better adapt to the market and increase the e�ciency.

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About Azoya:Azoya is a leading turnkey e-commerce solutions provider, which endeavours to help overseas retailers break into China via cross-border eCommerce. The company prides itself as being the cross-border e-commerce leader that has signed exclusive agreements with the largest number of overseas retailers in China. With its all-encompassing services and dedicated specialist team, the company has won trust from more than 35 over-seas retailers in 12 countries, such as Sigma, the largest pharmacy group in Australia; La Redoute, the largest online retailer of women's apparel in France; and Feelunique, the largest online premium beauty retailer in Europe. For more details, visit http://www.azoyagroup.com/

Sell to China: Your Complete Category Handbook


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